Many people are increasingly using an estate planning approach that uses a revocable trust, as well as a will. In fact, most common estate plans these days include both of these elements.

This basic structure is now seen as the bare bones under which guardians of any minor children are appointed and executors of the estate are named, but all of the assets inside the probate estate are put into the revocable trust at the point of the client’s death. The purpose of the revocable trust when used in this strategy is considered to be a will substitute. The revocable trust, rather than the will, will have the bulk of the meat of the estate plan after a person passes away, whether this includes distributions in trust for the benefit of heirs or outright distributions to heirs. There are many different reasons to use revocable trusts such as addressing privacy concerns or probate avoidance, while also easing beneficiary designations.

However, revocable trusts are not used for the purpose of lifetime tax planning. Many people are under the impression that revocable trusts do benefit them in terms of tax planning. The revocable trust is living, meaning that the creator has the opportunity to revoke or amend the revocable trust at any time.

Because of this, there has been no shift of control or beneficial enjoyment of those trust assets, which would mean that it doesn’t address tax planning concerns. The most important provisions of a revocable trust cannot take impact until after a settler’s death, which is why it is considered a will substitute.

This means that there are no lifetime tax planning goals that could be accomplished by having a trust. However, it does still help to address concerns like avoiding probate. Sitting down with your lawyer to figure out whether or not it makes sense to fund a revocable trust is valuable. You have unique concerns and considerations that might only be addressed by a knowledgeable attorney.

Comments are closed.