What Is a Revocable Trust, and Do You Need One?

randell-c-doane.jpg  Partner at Doane & Doane, Palm Beach, Florida

  WWS contributor info-icon.png


While it is uncomfortable to plan for your death, understanding who will get your assets and how will provide you great peace of mind. A revocable trust is an excellent option for estate planning.


Let's face it: estate planning isn't always exciting, but it's very important, especially as you get older and earn more assets.

However, there is a widespread misconception that a revocable trust and estate planning is a privilege reserved for the rich. That is just not the case. Everybody should have an estate plan in place to provide for their loved ones after they pass away.

When developing an estate plan, you have several alternatives to consider, such as using a will or a trust. Because of the benefits it offers, a revocable trust is an excellent option for many people.


What Exactly Is a Revocable Trust?


A revocable trust is a legal arrangement in which you can deposit money and property to be utilized by your successors in the future. A revocable trust, by definition, is one that may be revoked or modified. The trust's conditions are stated in a trust document, which is simply a legal instrument that outlines the regulations and forms the trust.

Before we go into the details of a revocable living trust, here's a reminder on the roles of the persons engaged in a revocable trust:

1. The trust is established by a grantor (also known as the trustor or settlor).
2. A trustee manages the trust.
3. The trust's investments are allocated to a beneficiary.


How Revocable Trusts Work


A revocable trust is formed whenever a person executes a trust agreement naming a person(s), trust firm, or bank, or both, as trustees. The grantor and trustee might be the same individual in several jurisdictions. In such situations, however, a co-trustee should be nominated to assure managerial continuity in the case of death or permanent disability. Choosing a trusted firm or bank as trustee over individual guarantees that a qualified trustee is always accessible to work in the grantor's best interests.

A revocable trust typically mandates that the grantor's estate be handled for their benefit. In most situations, the grantor retains some control over the trust over their lifetime. These often include the authority to order the trustee to transfer all or a portion of the trust assets as the grantor deems appropriate, as well as the power to change or dissolve the trust at any moment.

Suppose the grantor is unable to handle their own affairs. In that case, the trustee typically has the right to make discretionary income and principal allocations to the grantor and, in certain instances, the grantor's family.

When a grantor dies, the trust functions similarly to a will, and the property is distributed to the successors in line with the conditions of the trust agreement. While a trust can be financed after the grantor's death, it is typically preferable to do so while the grantor is still living. This assures the grantor's asset management and financial support if they become disabled.

To fund a trust throughout the grantor's lifetime, stocks, real estate, and other assets must be reregistered in the trust's name. Property in trusts financed at death is not required to be reregistered since the judicial estate is merely "poured over" into the trust. However, funding a trust after death does not eliminate the necessity for probate.


Advantages of Revocable Trusts


I. Continuity of Management During Disability


Generally, establishing a revocable trust is the best way to make sure that your property remains accessible for your advantage if you become physically or mentally incompetent in handling your own affairs. While a dependable power of attorney allows for continuity of administration, third parties, including banks, brokers, and transfer agents, sometimes have greater difficulties interacting with a power of attorney than with a trust arrangement.

Furthermore, if the designated attorney-in-fact becomes unable to act, a power of attorney may be deemed ineffective. Become incapacitated without a revocable trust or a supervision. You will generally go through a costly, long, and often embarrassing court procedure to designate a conservator or guardian before your assets may be used to help you or your family.

Even after a guardian is assigned, the court is generally required to supervise financial and spending management. Yearly bond fees, accounting records, and additional legal and accounting expenses are instances of this.


II. Flexibility


When you use a funded revocable trust, you may be able to appoint unrelated, out-of-state persons and trust businesses to function as the principal administrator of your property upon your death.

Many jurisdictions limit your flexibility in this area if you do not have a trust. Furthermore, amending a revocable trust is typically easier than amending a will.


III. Probate Avoidance


Probate is the legal procedure used to decide whether or not a will is legitimate. Because probate may be costly and time-intensive, one of the major benefits of a revocable trust is the avoiding of probate. The level of this advantage may differ from one location to the next.

Trying to avoid probate, for instance, may be a significant benefit if you own property in more than one state since it saves you multiple probate processes.

However, because the probate procedure varies by jurisdiction, it is important to contact local counsel to discover which, if any, disadvantages of probate applicable to you.


IV. Assets Available at Death


At the grantor's passing, assets under a revocable trust are accessible to raise cash to pay estate taxes, administrative fees, and obligations immediately after death, without the need for a probate judgment or the issuing of preliminary letters.

If the trust is maintained prior to death, the assets in the trust stay in the trustee's name both before and after death, and it is immediately liquidated if the need arises.


V. Originals that have been lost or destroyed


To avoid a presumption that the will was revoked, all original wills must be produced when submitting a will for probate. Typically, only one original must be created when a person dies.

However, due to the fact that revocable trusts are not probated, many originals may be signed, and one original may verify transferred property kept in the trust at death.

As a result, having a revocable trust may ease the transfer of ownership upon death if the original will cannot be found or has been destroyed.


VI. There will be no interruption in investment management.


One of the major advantages of establishing a revocable trust is the ability to provide continuous asset management if the grantor becomes incapacitated or dies.

For example, there is no need to reregister securities after death if the assets were already transferred into the trust's ownership.

Furthermore, depending on the grantor's estate's financial needs and investment objectives, there may be no need to establish a new investment plan.


A Lawyer's Assistance


So, is a revocable trust the best estate planning tool for you?

The easiest way to find out is to consult with an estate planning attorney about your specific circumstances. Your attorney will assist you in correctly establishing your estate in order to provide for the people you care about when you pass away.

While it is uncomfortable to consider planning for your death, understanding who will get your assets and how will provide you and your loved ones — with peace of mind.

Randell C. Doane is irrevocable trust lawyer in West Palm Beach, Florida. He is recognized as a specialist in tax law and is board certified in the law of wills, trusts, and estates by the Florida Bar Board of Legal of Specialization and Education. Randell is also Partner at Doane & Doane, which assists you in determining the ideal trust for you in order to plan for life's unforeseen events. Connect with him on LinkedIn.