Five Reasons to Include One in Your Estate Plan
Preparing a Will to direct where your property goes after death is a basic step for any estate plan. However, many New Hampshire families are finding that a Will alone is not enough, and that there are significant advantages to creating a Revocable Trust to protect their assets and their family. The usefulness of a Revocable Trust depends upon your estate planning goals, not your age or your asset level.
A Revocable Trust is an agreement whereby one person (the “Trustee”) holds assets for the benefit of another (the “Beneficiary). The person who creates the trust is known as the “Grantor.” Because the Trust is “revocable,” the Grantor can change the terms of the trust at any time, as long as he/she is competent to do so. In most cases, the Grantor is also the initial trustee and the primary beneficiary. This allows the Grantor to maintain control over the assets placed in the Trust.
The Revocable Trust has two basic parts to it. The first part describes how the Trustee should deal with Trust assets while the Grantor is alive (generally, the Trustee is directed to use the Trust assets for the Grantor’s benefit). The second part tells the Trustee how to distribute the property after the Grantor’s death (this part of the Trust operates very much like a Will).
The top five reasons for making a Revocable Trust a part of your estate plan are as follows:
- Probate Avoidance. “Probate” is the court supervised process that occurs after a person’s death, in order to transfer property to heirs in accordance with their Will. The process varies by State, and New Hampshire’s probate process is more complicated than most. It involves filing fees, multiple documents to be filed with the Court, and a requirement that the Executor carry a surety bond. The heirs cannot receive distributions from the estate for at least six months (and more often it is a year), in order to allow creditors time to make claims against the estate. Assets which are titled in the name of a Trust (as opposed to being owned individually) are not subject to the probate process. Instead, the Trustee simply deals with the Trust property after the Grantor’s death in accordance with the instructions provided in the Trust document. The Trustee need not report to the Probate Court, which can result in significant savings of time, expenses, and attorney’s fees.
- Tax Planning. New Hampshire does not currently impose an estate tax, but the Federal government does. The Federal estate tax applies to certain transfers of assets on death, when the value of the assets exceeds the “exemption” amount ($5.25 million in 2013). For married couples with total assets greater than the exemption amount, a revocable trust can be an important tax planning tool. The trust can direct the trustee to create a “credit shelter” trust after one spouse dies. The credit shelter trust is designed to maximize both spouses’ use of the estate tax exemption amounts. Although new Federal law has made the exemption amount “portable” between spouses, a credit shelter trust allows spouses to shelter the appreciated value from the estate tax when the second spouse dies and may afford greater asset protection.
- Beneficiaries with Special Circumstances. If your heirs have special circumstances (they are minors, disabled, in a troubled marriage or simply not good with money), then leaving assets in trust for their benefit may be significantly better than leaving assets to them outright through a Will. When assets are left outright to a minor child, for example, it is often necessary to have a court appointed guardian to manage the assets (this may be true even when there is a surviving parent). Guardianships can be expensive, and they require strict court supervision. Furthermore, the child will generally be entitled to receive the assets at age eighteen. Many eighteen year olds are not well equipped to manage their own money. Alternatively, a trust allows you to name a trustee who can manage the assets for the benefit of the child until the child reaches age 21, 25, 30, or any other age that you deem appropriate.
- Lifetime Benefits. A revocable trust will allow you to control and manage your assets as long as you are able. In the event that you become disabled or incapacitated, the successor Trustee named in the document can step in to manage the Trust assets. This can be done seamlessly, and without the need for a court appointed guardian, which typically involves a costly and emotionally draining process.
- Privacy. A Will must be filed with the probate court and becomes a public document after a person’s death. A Trust, on the other hand, does not generally need to be filed with any court or registry, thereby protecting the privacy of the Grantor and his/her family.
© Annis & Zellers, PLLC
This material is introductory and does not constitute legal advice. Please consult with your lawyer for estate planning services based upon your specific circumstances.