Why should I consider a Revocable Trust as part of my Estate Plan?

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1st Dec 2016

 
 
Estate Planning is an essential part of each person’s life as it allows for a more efficient administration of one’s estate after death. One estate planning tool is called a Revocable Trust. A Revocable Trust offers many benefits that a Last Will and Testament cannot provide.
 
Some of these benefits are:
 
§  You Maintain Ownership and Control of Your Assets.  When you transfer title and ownership of your assets to your Revocable Trust that does not mean you give up control of those assets. Typically, you will name yourself as the trustee of the Revocable Trust so that you are able to transfer, manage, use, etc. your assets just as you did prior to the transfer to the Revocable Trust. Your Revocable Trust will name a successor trustee to manage the assets after your death.
 
§  Potential to Avoid Probate: If you transfer title or ownership of all your assets to your Revocable Trust, you will avoid a probate proceeding, which can be a long and costly process. Also if you own real estate in other states, having your Revocable Trust own the real estate, avoids a probate proceeding in each state where you own real estate.
 
§  Privacy. A Revocable Trust is a private document whereas a probated Will is a public document.
 
§  Allows Gradual Transfer of Assets. A Revocable Trust can provide for gradual disbursement of trust assets to your children rather than a lump sum distribution upon your death. For example the trustee of the Revocable Trust can make a disbursement of ¼ of the Trust balance at age 25, ½ of the Trust balance at age 30, and the remaining balance at age 35. This gradual distribution allows time for your children to gain the financial maturity that tends to come with age.
 
§  Potential to Capture Minnesota’s asset exemption from Minnesota estate taxes for each spouse. A Revocable Trust may help you, as a married Minnesotan, protect some assets from estate taxes that you could not do with just a simple Will. Minnesota exempts $1.6 million in assets from Minnesota’s estate tax for persons dying in 2016. To take advantage of the first-to-die spouse’s exemption limit, the Revocable Trust can designate that a Family Trust will be established at the deceased spouse’s death, which benefits your children. The Family Trust will be funded by an amount equal to the Minnesota exemption amount and the remaining assets will transfer to the surviving spouse. The Family Trust enables the deceased spouse’s exemption to be preserved because the surviving spouse has no legal ownership of the Family Trust. Nonetheless, the surviving spouse is entitled to income from the Family Trust, and can dip into principal as needed to pay for the surviving spouse’s health, education, maintenance, and support.
 
§  Possibility of Avoiding Disputes. A probate proceeding requires “notice” to all heirs regarding the proceeding and disclosing to them the assets your estate even if they are not designated as a beneficiary of your estate. However, the benefit of the Revocable Trust is that there is no “notice” requirement, meaning that only those who receive assets of your estate are notified as they receive the distributions.
There are a few drawbacks to having a Revocable Trust, but they usually do not outweigh the benefits:
§  Retitle Assets. Taking time to transfer titles so that your Revocable Trust owns your assets is important for avoiding probate. If you cut corners with this step, and die with real estate owned solely in your name or are the sole owner of assets valued at or above $75,000, probate will still be required in Minnesota.
 
§  Your Initial Estate Planning Costs are Higher. It costs more for a lawyer to draft a Revocable Trust than to draft just a basic Will.  In the long run, however, your costs will be lower if probate is avoided.
 
§  You Will Still Need a Will. However, your Will document will be quite basis and not reveal the assets of your estate. It will direct that any assets owned by you at your death that weren’t already re-titled into your Revocable Trust, will now be transferred to and distributed based on the language in your Revocable Trust document, a private document. Your Will also is used to nominate a guardian for any minor children you have.
 
If you would like to explore your estate planning options and more specifically incorporating a Revocable Trust into your estate plan, please contact Anderson Larson to set up an appointment with an estate planning attorney.