What is a revocable trust and why should you have one if you are a homeowner, a business owner, a licensed professional, have substantial investments, or are part of a blended family? A revocable trust is somewhat like a fortress that protects your intentions and interests while saving you and your beneficiaries a substantial amount of money.
3 Key Insights into What is a Revocable Trust and Why Should You Have One:
- A revocable trust, often referred to as a living trust, is a legal entity that allows the individual(s) that create the trust (often the grantor, or trustor) to transfer assets (real estate, business assets, investments, even financial accounts) into the protections of an entity that can pass those assets per their instructions, while still retaining authority to make decisions about those assets while they are living.
- One can add or remove assets as well as beneficiaries from a revocable trust at any time.
- A revocable trust can help to protect assets from creditors and predators through a veil of privacy, and allows the asset(s) to avoid the expense and time of probate, passing directly to the beneficiaries at the passing of the grantor(s).
A trust is a standard legal and estate planning tool that ensures your assets pass to your beneficiaries and the interests you care about without having to go through the time and expense of probate court.
What is a revocable trust, and why should you have one? A revocable trust allows you to remain in control of your home and assets and make changes along the way. You can sell your home and buy a new one. You can create or update directions regarding how the assets and funds in your revocable trust are to be distributed upon your passing. Generally speaking, anyone with an estate worth more than $150,000 will save money with an effective estate plan that includes a revocable trust.
Do you think your estate is worth $150,000? Probate costs and the associated process are based upon the appraised value of the asset(s), not their equity. This is not about the equity in your home; it is about the appraised value of the home, regardless of the mortgages and other liens or encumbrances attached to it. The median value of a house in San Diego is approximately $950,000, meaning any homeowner in San Diego would save a substantial amount of time and money for their beneficiaries by placing their home and other assets within the protections of a revocable trust.
Probate is a time-consuming and expensive venue. The probate court charges a fee. The compensation for just the executor in this $950,000 home example is $22,000. This amount does not include probate fees and court costs, filing fees, notices, a probate bond ($950 in this example), fees associated with the probate referee, and other expenses. There are also fees for an attorney (the same structure as an executor – another $22,000) and anyone else who helps to manage or dispose of your assets in probate. There will be tax filings and taxes to be paid – allot another $1,000 to $2,500 based on the complexity of your estate.
If you have a blended family, and either or both spouses have children from a previous marriage, it is usually essential to ensure provisions are made to assure some portion of the estate is set aside for each of those children, no matter what happens to the grantor(s). Revocable trusts provide incredible flexibility while ensuring these protections for those you love.
The probate cost savings alone for a single-family home far exceed (10 to 20 times over, or more) the cost of your estate plan that will include a living will, healthcare directives, and a revocable trust. The more comprehensive your holdings and interests, the greater the financial benefit.
Ask your tax attorney or estate planning attorney about the additional benefits of an irrevocable trust to pair with your revocable trust. Irrevocable trusts add substantial protections for your assets, including protection from creditors, tax advantages, estate tax reduction, gift and Generation Skipping Transfer (GST) benefits, Medicaid and/or long-term care planning, as well as protections and provisions for beneficiaries with special needs.
What is a revocable trust and why should you have one? A revocable trust is a crucial component of an estate plan, enabling you to pass assets directly to your beneficiaries and the interests you care about without the time, hassle, and significant expense of probate. A revocable trust allows you to retain control over your assets while helping to ensure your instructions are followed throughout your life and at the time of your passing.
This is why a revocable trust is somewhat like a fortress that protects your intentions and interests while saving you and your beneficiaries a substantial amount of money.
Janathan L. Allen is an experienced international and domestic tax attorney, as well as an estate planning attorney, supported by the integrated accounting and business advisory professionals of Allen Barron, Inc. We guide you through each step of the process, and create documents that are enforceable while capturing your specific intentions and instructions. If you have questions about what is a revocable trust and why should you consider one we invite you to contact Allen Barron or call for a free consultation at 866-631-3470.
