Many of our readers have heard about the benefits of trust agreements in the context of estate planning. Undoubtedly, trusts are valuable tools when it comes to finding creative ways to pass on wealth, protect loves ones, and accomplish financial goals. One particularly useful form of trust agreement is a revocable living trust.
Trusts, of course, are arrangements in which legal title to property is given to one or more trustees who manage the property for the benefits of a third party. Revocable living trusts are created while you are still living, unlike testamentary trusts, which do not take effect until the creator of the trust dies. The terms of a revocable living trust may be changed by the trust creator at will, and because of this revocable living trusts do not bring any noteworthy tax benefits, either in the area of estate tax or income tax.
What, then, are the advantages of creating revocable living trusts? One benefit is that property placed in such a trust will usually avoid probate, saving time, money and hassle. Revocable living trusts can also be used to avoid ancillary probate, which otherwise applies to assets located in a state other than the one in which you live at the time of your death.
Privacy is another major advantage of using revocable living trusts. Even when setting up such a trust has no other advantages, some wealthy people choose to go with a trust-based estate plan in order to avoid having their affairs meet the public eye.
Revocable living trusts do not automatically protect assets from creditors, nor do they absolve one from having a will. And as we said before, they offer no tax benefits. Still, they can be quite useful and have their place within a well-rounded estate plan. Those who feel they could benefits from such a trust should speak with a qualified estate planning attorney to determine whether a revocable trust could offer benefits worth pursuing in their case.
Source: The Power of Trusts, “The Power of Trusts,” Dennis Holmstrom, July 9, 2013.