I was recently privy to quite a spirited online debate among a group of estate planning attorneys. The topic? Revocable Living Trusts and whether most clients really need them.
I didn’t actually participate in the debate (I didn’t see the discussion until after the fact), but the topic is an important one, so I thought I’d take a few minutes to contribute my thoughts.
First and foremost, there are certain states where the time and costs involved in probating a decedent’s estate are significantly greater than those involved in administering a Revocable Living Trust. In these states, a Revocable Living Trust can make sense strictly as a probate avoidance measure.
However, even in states with a streamlined probate process, Revocable Living Trusts can have a number of other advantages, including:
- Avoidance of Ancillary Probate: Where a client owns real estate in another state, a Revocable Living Trust saves the family from the expense and hassle associated with maintaining probate proceedings in multiple states.
- Privacy: The terms of a Will are a matter of public record in a probate proceeding. The terms of a Revocable Living Trust are not subject to disclosure to prying eyes in most cases.
- Prevention of Anticipated Challenges: For some clients, the chance of a Will contest is significantly elevated. Whether a client expects a challenge to arise because of a same-sex relationship, bad blood within the family, or another reason, opting for a Revocable Living Trust over a Will can help keep litigious relatives out of court and allow for the smooth, orderly, and relatively peaceful settlement of the estate.
Beyond streamlining the process of settling a decedent’s estate and warding off potential challenges, a continuing trust can be beneficial for numerous purposes. For instance:
- Taxation. Credit shelter trusts can shelter assets from taxation in the surviving spouse’s estate. Similarly, generation skipping transfer (GST) trusts can be used to protect assets from taxation in the next generation’s estate.
- Management. When a client has a beneficiary who is a minor, or who just isn’t prudent or financially savvy enough to manage their own inheritance, a continuing trust can be the right choice for protecting that beneficiary’s inheritance.
- Divorce and Creditor Protection. A continuing trust can be an invaluable tool for protecting a beneficiary’s inheritance from creditors’ claims, not to mention dissipation in the event of a divorce.
It’s important to note that not every continuing trust begins as a Revocable Living Trust. A Will can also be used to generate a continuing trust. Which brings me to my real point: no estate plan is one-size-fits-all. That’s why clients need the counsel of an experienced, qualified attorney who can help them understand all the costs and benefits of the various estate planning options available to them.
Stephen C. Hartnett, J.D., LL.M.
Associate Director of Education
American Academy of Estate Planning Attorneys, Inc.
9444 Balboa Avenue, Suite 300
San Diego, California 92123
Phone: (800) 846-1555
- The Magic of Grantor Trusts - September 19, 2023
- IRS Confirms Grantor Trust Status Alone Does Not Cause a Step-Up in Basis - August 15, 2023
- Double Your Gifting with Spousal Gift-Splitting - January 11, 2022