Many people want to protect their assets and provide for loved ones after death. While many types of estate planning structures may help, setting up a revocable trust could be an option for some individuals. Learn about the benefits of this trust to decide whether it can help in your specific situation. If you would like to learn more about your estate planning options, schedule a consultation with Jason English Law by calling (512) 454-7548.
What Is a Revocable Trust?
A revocable trust is also known as a living trust. This legal document establishes a trust which the grantor (the person creating the trust) can modify, amend, or revoke at any point in their own lifetime. According to the Consumer Financial Protection Bureau, the trustee is authorized to make decisions about the assets held in a trust. The grantor transfers ownership of their assets into the trust, managed by a trustee who holds and distributes the assets to benefit the beneficiaries designated by the grantor. However, with a revocable trust, the grantor still maintains control over their assets as long as they are living.
Benefits of a Revocable Trust
There are many reasons why an individual might choose a revocable trust to protect assets. These benefits include:
Avoidance of Probate
Probate is a legal process that occurs after a person dies. During this time, the person's assets are distributed according to their will, with all debts paid off. Typically, this process can take several months or even years to complete. Until the process is finalized, all the assets are held in probate, meaning they are unavailable to the beneficiaries. Also, probate can be costly, with legal fees and court costs reducing the value of the estate. Holding assets in a revocable trust allows them to pass directly to the beneficiaries designated by the grantor, bypassing the probate process.
Privacy
Wills are public documents that are filed with the court. As a result, they become part of the public record. With that, anyone can view the will's contents, including information about the grantor's assets and the beneficiaries. A revocable trust is a private document that does not need to be filed with the court, so the contents of the trust remain confidential.
Flexibility
A revocable trust can be modified or revoked by the grantor during their lifetime, offering flexibility and control over the assets held in the trust. With that, the grantors can accomplish the following without the need for the probate process:
· Add or remove beneficiaries
· Change the trustee
· Make other changes to the trust
Asset Management
A revocable trust allows for a streamlined process for managing assets. This type of trust allows the grantor to designate someone to manage their assets during their lifetime, especially in the event of incapacity. If the grantor suffers a debilitating accident or is otherwise incapacitated, the trustee can manage the trust assets on their behalf, ensuring they are used in accordance with the grantor's wishes.
Estate Tax Planning
A revocable trust can be set up in a way that helps minimize estate taxes upon the grantor's death. According to the Internal Revenue Service, an estate tax is applied to the value of an estate after the exemption amount. A grantor can set up a trust that provides for the transfer of assets to their spouse tax-free upon their death, with the remaining assets passing to their children or other beneficiaries. As a result, this can help reduce or eliminate estate taxes, allowing more of the assets to pass to the grantor's heirs.
Reach out to an experienced estate planning attorney at Jason English Law to help you understand more about these types of trusts by calling (512) 454-7548.
What Is the Main Advantage of a Revocable Trust Over an Irrevocable One?
One advantage of a revocable trust is that the grantor of a revocable trust retains control of all the assets during their lifetime. On the other hand, an irrevocable trust is a type in which the grantor gives up all control and ownership of the assets placed in the trust. Once assets are transferred into an irrevocable trust, the grantor cannot change the terms or reclaim the assets. This lack of control can be a disadvantage for some people, especially if they are unsure of their future needs or want to retain the ability to change the beneficiaries or trustees of the trust.
Downsides of a Revocable Trust
In certain situations, an irrevocable trust may be more advantageous than a revocable one. An irrevocable trust can be used for estate tax planning purposes, as assets held in the trust are not subject to estate tax upon the grantor's death. Additionally, an irrevocable trust can provide asset protection benefits since assets held in the trust may be protected from creditors or legal judgments. While there are many benefits to using a revocable trust as part of an estate plan, there are also some potential downsides to consider:
Cost
Setting up a revocable trust can be more expensive than drafting a will. Legal and administrative fees may be involved in creating and managing the trust, along with ongoing costs to maintain it.
Funding
A revocable trust only provides benefits if it is properly funded. Assets must be transferred into the trust during the grantor's lifetime to avoid probate. Any assets not transferred must go through the probate process.
Control
While the grantor of a revocable trust retains control over the assets during their lifetime, this can also be a downside in certain situations. For example, if the grantor becomes incapacitated and unable to manage their affairs, the trustee may need to manage the assets on their behalf.
Taxation
While assets held in a revocable trust can be transferred to the beneficiaries without delay when the grantor passes away, they are still subject to income and capital gains taxes during the grantor's lifetime. The grantor will need to continue to pay taxes on any income generated by the assets, which could reduce their overall value.
Contact an Estate Planning Attorney Today
Protecting assets and providing for loved ones is important for many individuals. Setting up a revocable trust may help you achieve those goals.
