When you consult with an estate planning attorney you get the benefit of his or her experience. There are numerous different ways to arrange for the transfer of your monetary assets. It is wise to be apprised all of your options before making any decisions based on uninformed assumptions.
With this in mind let’s take a look at revocable living trusts.
Benefits
A revocable living trust enables the transfer of assets outside of the probate process. When someone passes away using a will to direct asset transfers the executor submits it to the probate court.
There are some reasons why you may want to avoid probate. One of them is the fact that everything that takes place becomes a matter of public record. You may not want anyone and everyone to be able to pry into your final business.
Another thing to know about probate is the fact that it can be expensive. There are court costs, the executor’s remuneration, accountant charges, legal expenses, and appraisal and liquidation costs.
All this can eat away a considerable portion of the estate that you will be leaving behind to your loved ones.
The last pitfall we would like to mention is the time involved. The heirs to the estate are not given inheritances until the court has closed the estate. This can take several months even in routine cases.
Another benefit that you gain by conveying assets into a revocable living trust is the ability to name a successor or disability trustee. This trustee would take over and administer the trust if you were to become incapacitated, and some form of incapacitation is relatively common among people who reach an advanced age.
Is This the Right Choice?
Revocable living trusts can indeed enable probate avoidance, and you can account for the possibility of future incapacity when you create the trust. However, you may have additional concerns that are not addressed by the creation of a revocable living trust.
The estate tax would be one of them. The federal estate tax carries a $5.25 million exclusion in 2013. The top rate of this federal death levy is 40%.
Any assets that you have conveyed into a revocable living trust would be counted as part of your estate for tax purposes. It is possible to convey assets into different types of trusts that would in fact deliver estate tax savings.
You may want to protect your assets from creditors or litigants. There are legal devices that can be utilized to protect assets, but revocable living trusts are not among them.
It is also important to understand the fact that assets that have been conveyed into the trust would be counted by Medicaid evaluators if you were to apply for Medicaid as a way to pay for long-term care late in your life.
Larry Parman
Author, President and Founding Attorney
Parman & Easterday
Since founding Parman & Easterday in 1985, Larry has led over 1,000 free, community-service education programs and helped more than 10,000 Oklahoma families go from putting off their estate plan to getting it done. His goal for every client is the same: to become the person their family calls "the one who took care of everything."
Larry is the author of three books: The Straight Shooter's Guide to Estate Planning; Estate Planning Basics; and Guiding Those Left Behind in Oklahoma. He served as Oklahoma's Secretary of State and Secretary of Commerce, and his firm is the only member of the American Academy of Estate Planning Attorneys in the state.
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