You may have thought that a revocable trust is only for people with mass amounts of wealth to manage. Think again.
As you get older and start acquiring more assets, many people, regardless of their income, choose to set up a revocable trust. This legal agreement gives clear directions on how your estate should be distributed and to whom.
Regardless of how much savings or investments you have, a trust is a handy tool to avoid probate court and streamline the transfer of wealth. If you own your home, it also enables your heirs to quickly manage or sell your property in the event of your being incapacitated or death.
But is a revocable trust right for you? Kim Raemdonck, a Denver estate planning attorney with Legacy Planning and Probate, offers some insight on estate planning, and in particular, revocable trusts.
Advantages of a Revocable Trust
This document replaces a will and all assets are put in a private entity called a trust. It can be modified at any time. You can add and remove assets at any time, and change or modify the beneficiaries and what they will receive.
“One of the best aspects of this type of trust is that you’re able to avoid probate court, the administration court proceeding that requires a personal representative to pay your debts and distribute assets (per your will),” Raemdonck explains. “This process can be time consuming, is public and can drag on. Particularly during COVID-19, probate court proceedings were delayed for many months as court personnel were furloughed and there was a backload of cases.”
A revocable trust enables your assets to be released and distributed per your instructions seamlessly without court supervision. Typically, you will be the primary trustee but you also designate another individual as a trustee in the event you can no longer make decisions for yourself or when you die. The trust becomes its own entity that takes ownership of all your personal property and assets.
Upon death, money will be available immediately. The trustee will have instant access to use funds for estate taxes, debts, administrative expenses and disbursements of inheritance to beneficiaries.
Furthermore, revocable trusts are completely private. With a will and the need for probate, all proceedings are public.
“There are many advantages to revocable trusts,” said Kim Raemdonck, an estate planning lawyer and probate administrator. “There are no delays, there is no court involved and no need for certified letters to gain access to accounts. It puts the trustee in total control without a court-appointed conservator. Everything is outlined in the trust document, and the trustee can act immediately.
Also, the revocable trust can be activated if you become incapacitated and enables the designated trustee (other than yourself) to make decisions for you and manages the assets. It remains active and avoids any potential outside conflict.”
Disadvantages of a Revocable Trust
There is no question it’s more expensive to set up this type of trust and you’ll have to steel yourself for gathering and signing many documents. The paperwork alone can be daunting.
There are no tax benefits to consolidating your assets into a revocable trust. Also, IRAs and other retirement-specific accounts typically require they be owned by an individual and not a trust.
Remember, all of your assets must be retitled to be part of the trust. Make sure you keep an up-to-date list of all your assets. If you forget about an account or another asset, it won’t be included in the revocable trust.
Take Inventory of all Your Assets
If you think a revocable trust is in your best interest, make a list of all your assets and who you would like to receive them upon your passing. These items include cars and other vehicles, artwork, furniture, personal items and other possessions that hold value to you. You may want to have a conversation with your beneficiaries and make sure they are interested in the items. Otherwise, it might be time to donate the belongings to charity or sell them outright.
“Keep in mind why you need an estate plan,” Raemdonck said. “Most people want to minimize wealth transfer taxes and have personal objectives when it comes to settling an estate. Some of those include the appointment of a guardian for minor children, minimizing conflict between family members, smooth transition of assets and legacy provisions.”
“If you don’t plan ahead, the state of Colorado will plan for you. Without a will or revocable trust., a judge will step in and make decisions for you, including who should manage your estate and care for your children. Do you want an unknown person managing your estate?”
(If you would like more information on a revocable trust and other estate planning tools and questions, contact Kim Raemdonck at 720-738-3400. Kim’s practice focuses on estate planning, probate administration, and tax planning and preparation. Kim works closely with individuals and families to develop comprehensive estate plans that meet her clients’ goals, and counsels them through the probate process when a loved one passes. In addition to a juris doctorate, Kim has a legal masters in tax which gives her a unique perspective when advising clients regarding legacy planning and administration issues).