Wills and Revocable Trusts: An Introduction

A revocable trust is an example of a “will substitute” since it can transfer property upon death without first going through a formal probate process. Other examples of will substitutes include IRAsand other retirement plans where you can designate beneficiaries, life insurance, jointly owned bank accounts and other property such as homes.

Revocable trusts are attractive because they allow the grantor(the person who created the trust) to

• maintain control over the designated assets;
• assign and change trustee(s), co-trustee(s) and/or contingent trustee(s) to manage the trust assets in case of incapacity (similar to a springing power of attorney);
• designateand change beneficiary/ies, so the assets in the trust can be transferred upon death without a formal probate process, delays and certain expenses. The more onerous the probate process is in your state, the more beneficial it may be to utilize a revocabletrust;
• Revocable trusts also provide greater privacy than wills, as wills are public documents and trusts are private.

Setting up a trust does not eliminate the need for a will.

• A trust does not provide for guardianship of minor children. A will does.
• A trust only governs assets “belonging” to the trust, which is accomplished by titling assets in the name of the trust. It’s not uncommon for people to set up trusts but never fund them, defeating the purposes of setting itup in the first place (similar to having your attorney prepare a will for you, then never signing it).
• A “pour over” will may be used to address assets that may still be held in personal name, not in the name of the trust, which are “poured” into the trust upon death.

For this client, setting up a revocable trust, in conjunction with a pour over will, was the best solution to meet her goals. They were both right!

Are there downsides to using a revocable trust?

Yes, there are things you should be aware of before setting up a trust.

• Trust assets are not protected from creditors.
• Because you maintain full control of the trust assets, they will be counted as resources when applying for needs-based Medicare coverage for a nursing home.
• The use of a revocable trust will not reduce your estate taxes. There are other strategies available for those for whom this is a goal.
• As a reminder, the trust needs to be funded.

I own two homes in two states. Can a revocable trust help me?

It can. Disposition of property owned in one state is governed by the rules and procedures in that state. In this client’s case, her estate may be subject to “ancillary probate” because she owns real property in a state outside of his primary residence. Use of a revocable trust is one way to eliminate ancillary probate. Other ways include owning the property jointly and using a transfer-on-death (TOD) deed, if allowed in your state.

Can I put my co-op into a trust?

Maybe. Check with your co-op board to see if they allow this.

Can I put my IRA in a trust?

Yes, you can, but you might not want to. You can designate beneficiaries directly on your IRA, eliminating the need to put them in trust just to avoid probate. In the past, there were situations where people would put inherited IRAs in trusts, most often to control and limit beneficiary access but, given changes brought about by the SECURE Act in January 2020, this strategy has become largely obsolete.

What should I do?

Review your will, any trust documents, life insurance, retirement plans and accounts, and asset titling every year and anytime there has been a major change in your life.

Speak with your advisors about what you are trying to accomplish (in plain English). They should be able to give you guidance (also in plain English) to help you achieve your goals.