A revocable trust, sometimes called a "living trust" is a Will substitute that accomplishes many of the same goals outlined in our discussion on Wills. Assets in the trust pass to the beneficiaries of the trust upon the death of the grantor of the trust. The grantor retains the right, to access the trust assets throughout his or her life. In our experience, the primary reason most people select the revocable trust instrument is for the stated purpose of avoiding the cost and delay associated with the probate process.
In many instances, we see the revocable trust instrument as a neutral solution, in that our clients pay us up front to pre-administer their estate, by transferring all of the their assets into the revocable trust. So long as the client is vigilant in keeping all of the assets in the revocable trust throughout his or her life, upon death, their assets will avoid probate.
Some advantages of creating a revocable trust may include (a) the avoidance of having to administer an estate in two jurisdictions if, for example, a person owns property in New York and Florida; (b) making it more difficult for a beneficiary to contest the distributive scheme set forth in the trust, (c) maintaining privacy as it relates to who receives the trust estate, and (d) reducing some of the costs associated with administering an estate.
Some of the disadvantages include (a) the costs of establishing a revocable trust compared to less expensive alternatives, such as holding an account jointly between spouses, (b) the costs associated with transferring all the assets into the trust, (c) the requirement that all existing assets remain in the trust and that all newly acquired assets are transferred into the trust; (d) the modest charge required to keep and maintain the trust for the balance of the Grantor's life, (e) complicate the rights of creditor claims, creating some ambiguity as to the successor trustee's personal liability, and (f) the practical challenges of getting used to operating or managing one's life as a trustee, instead of as an individual. Too often we see clients establish revocable trusts and fail to make sure all of their assets are transferred into the trust. Upon their death, a probate proceeding is then required undermining the goals established at the outset of the planning process.
A revocable trust and a Will are identical in their ability to solve estate tax problems. They both do nothing as it relates to protecting assets from potentially expensive nursing home care costs.
Revocable trusts, like all estate planning instruments, are solutions to problems. They are not, standing alone, "good" or "bad". In many circumstances, they are the perfect solution and in others, just a bad idea.