This month’s tip courtesy of Linda Retz, Esq.
WHAT A REVOCABLE LIVING TRUST DOES AND DOES NOT DO
Many clients choose to have a revocable living trust as
the cornerstone of their estate plans. The terms of such a trust
can be changed by the creator throughout his or her lifetime and
assets can be withdrawn by the creator at will. To realize the
benefits that such a trust has to offer, it is essential that the
creator’s assets without beneficiary designations (and that are
not held in certain forms of joint ownership on purpose) be
transferred to the trust as soon as it is signed. Once these
assets have been transferred to the trust, it is “funded.”
A funded revocable living trust will:
- Avoid a probate administration after the creator’s
death and the costs, “red tape” and delays
associated with it.
- Avoid the necessity for a conservatorship of the
creator’s estate (for asset management) if he or
she becomes incompetent and the costs and
embarrassment associated with a conservatorship.
- Provide a certain level of privacy vis-a-vis the
public at large.
A revocable living trust does not:
- In and of itself, save estate taxes. Special
planning to save estate taxes can be done either
in a Will or revocable living trust.
- Provide its creator with creditor protection
during his or her lifetime.
- Avoid the need for a conservatorship of the person
of an incompetent person, to authorize someone
else to make decisions about that person’s
- Mean that nothing has to be done after the creator
dies. After the creator’s death, certain legal
notices have to be given, tax reporting has to be
done and assets must be conveyed to the
beneficiaries in keeping with the terms of the
decedent’s estate planning documents. The failure
to obtain the proper legal and accounting advice
can lead to the dishonoring of the decedent’s
estate plan, the payment of large tax
deficiencies, interest and penalties, difficulties
in selling and borrowing against property and, in
a worst case scenario, lawsuits.
In keeping with Internal Revenue Service rules and
regulations, I inform you that any tax advice contained in this
communication (including any attachments) was not intended or
written to be used, and cannot be used, by any taxpayer for the
purpose of (1) avoiding tax-related penalties under the U.S.
Internal Revenue Code or (2) promoting, marketing or recommending
to another party any tax-related matters addressed herein.