Is A Revocable Living Trust Right For You?

I don’t want to get your goat, but here are some of the most common misconceptions I hear about revocable living trusts:

Setting up a revocable living trust to avoid probate results in no administration costs upon death.

Agreed - a properly funded trust avoids probate. However, as trusts have become more popular, the requirements of a trust have increased. The successor trustee is required to give notice and account to beneficiaries, pay final taxes and should post a newspaper notice to cut off any future claims against the trust. If there are additional trusts to fund in the administration, assistance is usually required to ensure compliance with all the legal requirements of the trust.

Money in a revocable living trust is exempt from creditor claims.

A revocable trust is subject to the claims of the person who established the trust. Asset protection is established when irrevocable trusts are created from the revocable trust upon the passing of the person who established the original trust.

Revocable trusts save on taxes.

Provisions in the trust can save on estate taxes. However, with the Maryland estate tax exemption set at $5 million and federal estate tax exemption set even higher, the estate tax is not a consideration for most citizens. Estates still need to deal with inheritance taxes, income taxes and capital gains taxes. These taxes need to be addressed in estate planning whether or not a revocable trust is used.

Money from a revocable trust will be immediately available to the beneficiaries.

Your trustee should have access to the trust funds upon your passing. The trustee must pay the last bills, file tax returns, ensure that a new “basis” is established for trust assets, and make sure there are no claims filed against the trust before distributing money to the beneficiaries.

A revocable trust will ensure that your assets go to your children when there is a second marriage late in life.

As of October 1, 2020, a surviving spouse is entitled to one-third of the “estate subjection to election” when the deceased spouse has surviving children or grandchildren. The definition of the estate subject to election is much broader than the previous law that just covered the probate property and now includes the revocable trust.

In summary, revocable trusts are valuable planning tools in the right circumstances. The creation of trusts is often the foundation of legacy estate planning. The revocable trust can be used to fund continuing trusts that do provide for keeping assets in the family, care of a disabled child, education of grandchildren, and protection of a surviving spouse. Education is a key factor in understanding revocable trusts. The client must be able to trust the attorney and communicate their goals and concerns in the planning process. The purpose of this article is to point out some of the misconceptions concerning revocable trusts.

These answers are general information and not intended as legal advice for your individual situation. Steven M. Berger is an attorney and accredited estate planner (AEP) operating at 821 West Benfield Road, Suite 1, in Severna Park. For more information, call 410-777-5916 or email info@bergerwills.com.