A revocable living trust is a unique way to own property today and transfer it to the beneficiary you choose at the time of death. It’s an estate planning tool that doubles as an effective financial planning tool. Here are six benefits of a revocable living trust.
Avoid Probate Costs and Delays
Property transferred to the trust during your lifetime isn’t subject to probate after you pass. While many assets aren’t subject to probate in NC (life insurance proceeds, IRAs, jointly owned property) establishing a revocable living trust can save your heirs both time and money. Establishing a revocable living trust means your family may avoid most of the delays, confusion, and costs of settling or probating your estate.
Probate costs in North Carolina are four tenths of 1% of the value of the probate estate. Attorney’s fees generally range from 1% to as much as 5% of the value of the estate. While settlement costs are often based on the complexity of settling the estate, costs can range from about $2,500 (to settle a $100,000 estate), to $10,000 (to settle a $400,000 estate), and upward from there.
The Trust Continues for Beneficiaries
The trust agreement can distribute some or all property to beneficiaries immediately upon your death. If you prefer, it can also direct distribution for many years after your death. For example, you can name a trustee to hold and direct property and/or money to beneficiaries throughout their lifetimes. Another option is to pay your designated beneficiaries from interest and/or income on property with the principal going to their beneficiaries when they pass.
Minimize Estate Taxes
A carefully planned revocable living trust can help avoid or minimize federal estate taxes. Because the estate tax exclusion is several million dollars per person, there are few tax issues these days. However, the trust can facilitate the reduction of the size of your estate. This results in additional protection for your heirs.
It’s important to note the revocable living trust itself doesn’t avoid or reduce your federal estate tax. For tax purposes, property owned by the trust is part of your gross estate. However, the trust does make it easier to set up arrangements that can minimize taxes.
When an estate goes through probate, all estate records become public. Anyone can look at the records and know what your assets and liabilities were, and exactly who inherited what.
The revocable living trust is private. The nature, value, and beneficiaries are not available to the public.
Protection in the Event of Illness or Incapacity
Most revocable living trusts appoint a trustee and a successor trustee. If you name yourself as trustee on your revocable living trust, you should also name a successor trustee. Unless your Durable Power of Attorney specifically provides for your agent to name a successor trustee, he/she won’t have the ability to make any decision for the trust. Having a named trustee makes it much easier for you and your family should the need arise.
Professional Investment Management
You retain control over assets in the trust through the ability to change (or revoke) any of the terms of the trust at anytime (provided you are of sound mind). However, you also have the ability to name a family member, bank, trust company, or an investment management professional to take over the day-to-day responsibilities for your investments. This makes it much easier for someone else to step into the financial shoes of managing assets held in the trust.
Carefully weigh the costs of drafting and funding a trust against the potential savings in probate and administrative costs. (And don’t forget to consider emotional costs of probate.) A living trust allows you and your family to make decisions and distributions without the courts and legal system.
If you would like more information on revocable living trusts, download our whitepaper, Revocable Living Trusts Exposed here. If you would like to explore the appropriateness of trusts in your individual situation, please call our office at 336-448-1086, or send me an email at: Craig@MaestroWealth.com.