As an estate planning attorney, I often meet with clients who tell me they "need" a revocable trust. When I ask why, the most common answer is because they heard Dave Ramsey, Suze Orman or some other television or radio personality state that everyone needs a revocable trust. Although revocable trusts can be very beneficial, not everyone needs a revocable trust.
A revocable trust is an alternative way to own property. You create a living trust during your lifetime by signing a trust agreement that directs how property transferred to the revocable trust will be managed, when and to whom the trust income or principal will be paid, and when and to whom the trust property will be distributed when you die. It can do everything a Last Will and Testament can do, and more.
What advantages does a revocable trust provide?
(1) Probate Avoidance - Everything owned by the revocable trust passes without involvement of the Circuit Court (the court that handles estates in South Dakota) when you die, so your revocable trust can act like a "will substitute" to carry out your wishes. If you own property in more than one state, having title to the property in your revocable trust will avoid probate in multiple states. Probate only affects those assets which you own at the time of your death, but those assets that have been placed in a revocable trust are not owned by you, therefore, no probate is necessary on those assets. The probate process can be time-consuming and expensive, making probate avoidance very appealing.
(2) Privacy - Many clients, especially those who live in small towns, want to keep their financial matters private. Unfortunately, probate is a public process. Once your Last Will and Testament is filed with the Circuit Court, it becomes a public record available for inspection to anyone who requests to see it. A revocable trust is a private document, which is not filed with any court upon your incapacity or death; thereby protecting your financial privacy.
(3) Continuity - In the event you become incapacitated, your revocable trust will name someone (a successor trustee) to manage your property in the revocable trust if you cannot do it yourself. Court procedures can address these matters even if you do not have a revocable trust or durable power of attorney, but having the revocable trust will make it easier (and less costly) for your loved ones.
(4) Second Marriage Protection - When married couples have children from a previous marriage or, if remarriage of a surviving spouse is a concern, the revocable trust can provide financial support for the spouse during the spouse's lifetime and ensure that your children aren't disinherited.
Can I change the revocable trust? As long as you are alive and competent you can change the revocable trust. That is why it is called a "revocable" living trust.
What kind of property can I put in my revocable trust? Most things: real estate, investment accounts, bank accounts, stocks, jewelry, household furnishings and furniture, automobiles, farm equipment and machinery.
What are the disadvantages of using a revocable trust? Initially, a revocable trust has greater costs than a Last Will and Testament, but those costs are usually a small percentage of the amount saved through the avoidance of probate costs. Additionally, the revocable trust won't be effective unless you transfer property into it. You have to do some homework once you establish the revocable trust if you want it to work as you intend. An improperly done revocable trust is not useful.
Are there times when a revocable trust is not the best option for an estate plan? Possibly. Here are a few situations: all of your assets will pass by beneficiary designation (IRAs, annuities or life insurance) or operation of law (jointly owned property) as you desire and with good results; you know you will never bother to fund the revocable trust; or having a low-cost estate plan is your highest priority at the moment.
To summarize, not everyone needs a revocable trust. A revocable trust can be a very beneficial and powerful estate planning option. If you want to know whether you NEED a revocable trust, you should meet with an experienced estate planning attorney to analyze your situation to determine what is best for you.