When you have finally decided that it is time to get your estate plan in place, you quickly realize there are a lot of choices you will have to make in order to implement that plan. One of the most important choices is what type of estate plan would best suit your needs – a revocable trust or a more traditional Will. There are many practitioners who make a habit of trying to sell one product versus the other, but that does not necessarily mean you should be buying what they are selling. Here are some important things you should understand before deciding which type of estate plan would work best for you.
What is a revocable trust? A revocable trust is an estate planning tool that is most often used as a substitute for a Will. It is a type of trust that is set up during your lifetime that can be changed or revoked by you at any time. A revocable trust is similar to a Will in two very important ways: as long as you have capacity, you can make as many changes to the trust as you need, and you also maintain full control over your assets.
What are the “hassle” factors of setting up a revocable trust? There are several “hassle” factors you should take into consideration before setting up a revocable trust.
First, a revocable trust is a bit more complicated than a Will, so you have to spend more time learning the vocabulary and concepts associated with the trust. This is because you will be using your revocable trust on a regular basis in dealing with your financial affairs. Like any other important legal matter, there are certain “terms of art” that need to be understood by you.
Second, you must take the time to transfer many of your assets into your trust, in order to take the full advantage of having a trust. This funding process involves transferring title of your assets to your trust (such as bank or brokerage accounts), or changing beneficiaries to direct other assets to your trust upon your death (such as life insurance or retirement proceeds). While your attorney can prepare the deeds and associated paperwork to transfer your home and other real property into your trust, you will have to visit your banks and investment brokers to make sure that your accounts are properly transferred into your trust. If you do not take the time to do this, the effectiveness of the trust can be seriously compromised and result in your estate going through probate upon your death – a time consuming (and often more expensive) process for your heirs.
A third consideration is that estate plans that incorporate revocable trusts usually cost more to put together and implement than estate plans that use traditional Wills. Your attorney will spend more time drafting the appropriate documents for you, and making sure you understand all of the important concepts associated with the trust documents. On the other hand, the cost of setting up a revocable trust often translates to less money spent going through the probate process for your heirs upon your death.
How can a revocable trust help with asset management during incapacity? One of the main benefits of using a revocable trust is that it provides an excellent tool to manage your assets during any period that you are incapacitated, whether permanent or temporary. If you use a Will, then you will be relying solely on a financial power of attorney to manage your assets during incapacity. You may have heard stories over the years about the struggles with getting financial institutions to accept a financial power of attorney. There are now laws in place that have made the acceptance of financial powers of attorney much more mainstream, which means that as long as you have comprehensive financial powers of attorney in place, a trust will not necessarily serve as a more effective asset management tool.
How does a revocable trust help protect my privacy? If you use a properly funded revocable trust, then your estate can avoid probate upon your death because any of the assets held in such a trust are considered “non-probate” property. Probate is the process where a Will is filed upon your death and the local court supervises the administration and distribution of your individually held asset. The probate process is a matter of public record, so anyone can see what assets you had during your lifetime. If you consider yourself a more private person or you do not want the public knowing what assets your children are inheriting, then using a revocable trust may be the better choice for you.
What other benefits does a revocable trust offer? There are a couple other benefits to using a revocable trust that are worth mentioning as you consider what type of estate plan would work best for you.
First, to the extent you own real property in multiple states, using a revocable trust can completely avoid the probate process to transfer all of those properties to your intended beneficiaries upon your death. If you owned those same real properties outside of a trust, a probate estate would have to be opened in each state where the real property was located. This can lead to delays and additional expense to administer your estate.
Second, it is harder for heirs to contest a revocable trust in Maryland. To set aside a Will, your heirs only need to prove “more likely than not” that the Will is invalid (for example, you did not have capacity to sign the Will, or were coerced into doing so). Compare this to the standard for setting aside a revocable trust, for which your heirs must prove by “clear and convincing evidence” that the trust is invalid, which is a higher standard. If you anticipate that your Will may be contested upon your death, then using a revocable trust may be the better option for you.
Still unsure which option is right for you? Although a revocable trust can be an excellent estate planning tool for some, it is not for everyone. When you meet with your attorney to set up your estate plan, make sure you have a discussion about the information contained in this article as it relates to your current situation. You should be prepared to talk about your financial, family and health situation with your attorney, so you can get the best recommendation to meet your specific needs.
For more information, contact the Davis, Agnor, Rapaport & Skalny attorney with whom you typically work, or one in our Estate Planning Practice Group.
