What Is a Revocable Trust? Should I Have One?
What is a revocable trust? I hear this question frequently as an estate planning attorney. Revocable trusts can be a vital and important piece to your estate plan. This blog post will explain the basics of a revocable trust and whether you should consider creating a revocable trust as part of your estate plan.
What Is a Revocable Trust?
At its simplest, a revocable trust is an agreement providing that property is to be held by one party for the benefit of another party. Typically, a revocable trust is a written document but oral trusts can be created in North Carolina. There are three parties involved in the creation of a revocable trust.
Settlor. This party is the person or persons creating the trust agreement and contributing property to the revocable trust. For example, this would be you if you decide you want to create a revocable trust. This party can also be known as a “grantor” or “trustor”.
Trustee. This party is the person or entity who will own the property in the revocable trust. The Trustee will manage and administer the revocable trust during its existence. There must always be at least one Trustee. The Trustee can be an individual or a corporate trustee, such as a trust department at a bank.
Beneficiary. This party is the person or persons entitled to benefit from the property held by the revocable trust.
These three parties will be involved in every revocable trust. In many cases, the Settlor will also be the initial trustee and the initial beneficiary. In which case, a successor trustee and successor beneficiaries will also be named within the trust agreement.
As you may have guessed from the name, a revocable trust is a trust which can be freely revoked by the Settlor anytime prior to the Settlor’s death. Revocable trusts are also known as “living trusts,” “inter vivos trusts,” and “revocable living trusts.” These terms all refer to the same type of trust agreement in which the Settlor retains the right to freely revoke the trust. When a Settlor creates a revocable trust he or she generally also serves as the initial trustee and is the initial beneficiary.
Should I Have a Revocable Trust?
There is a multitude of reasons to have a revocable trust. However, we are only presenting our top five reasons why you should have a revocable trust.
Probate Avoidance. Probate is a legal proceeding in which your property (your estate) is distributed to the beneficiaries in your will or your heirs by law if you die without a will. When you die in North Carolina, someone will need to probate your estate. This entails providing a copy of your will to the Court to open a file that can be viewed by the public at large. Your estate must also pay a fee equal to $4.00 for everyone $1,000.00 in personal property passing under your Will. This fee can be as high as $6,000.00. Furthermore, probate can take months or even years. These issues can be avoided by having all of your property held by your revocable trust.
You Own Real Property In More Than One State. Let’s pretend that at the time of your death you own a primary residence in North Carolina and a family vacation home nestled in the Tennessee side of the Great Smoky Mountains. Your beneficiaries/heirs will need to probate your estate in North Carolina and Tennesee! This will result in additional costs and time for your beneficiaries. By placing all of your real property into the trust, regardless of its location, you can avoid the need for multiple probate filings.
Incapacity Planning. By having the trust hold all of your property, the trust assets can be managed by your successor trustee in the event you are unable to make decisions for yourself. This avoids the need for the Court to appoint a guardian to handle your affairs.
Creditor Protection for Beneficiaries. If you have concerns about a beneficiary inheriting your money outright, you can create built-in protections to ensure that the beneficiary’s inheritance is protected from creditors such as a judgment holder or an ex-spouse in a divorce proceeding.
Contingency Planning for Retirement Accounts. If you have a 401(k), IRA, or another similar retirement account, a revocable trust is a great way to ensure that your legacy reaches its intended beneficiaries. The trust can be named as a beneficiary of your retirement account, ensuring that any minor beneficiaries can inherit their monies without the need for judicial intervention. You can also name your trust as a contingent beneficiary for life insurance or other financial accounts.
You do not have to “be rich” to create a trust. Even a modest estate can benefit from being administered through a trust. Please reach out to me at aaron@coastallegalcounsel.com or call my office at 910-409-6231 if you wish to further discuss whether a revocable trust is the right estate planning tool for you.