I’m going to start this by assuming that you have a valid will in place. If not, close your browser and go make that happen! For the rest of you, you may have wondered if your will is sufficient to take care of your estate when you pass away. Estate law is an ever-changing area, and what might have been a good idea a decade ago might be completely unnecessary or even harmful now. I’m going to tackle one of those often misunderstood tools, the revocable trust, and shed some light to hopefully give you some peace of mind and a solid game plan. (Please keep in mind that I’m not an attorney, so you should run any of this by your attorney before making any changes to your estate plan!)
A Revocable Trust (a.k.a Living Trust, Revocable Living Trust) is just that – a trust you create that you can revoke at any time while you’re still alive. While you’re alive, it’s a pass-through non-taxable entity that is essentially a will-substitute. By that I mean that assets owned by your revocable trust won’t pass through your will but rather through the instructions of the trust document. If you have a revocable trust, you will still need a will, and typically wills drafted alongside revocable trusts are referred to as “pour-over wills”, in that they pour over any assets that happen to pass through your will into the trust.
The main benefits of the revocable trust are avoiding probate and keeping things private.
Avoiding Probate – Assets that pass through your will are subject to probate (the process of validating a will). This sometimes lengthy process has fees associated with it (probate fees) and can tie assets up for a time period until the will has been validated by the courts. Thankfully the probate laws in NC are very friendly towards estates. If you had a normal will (no rev. trust), your probate assets would typically include your personal property (vehicles, jewelry, cars, etc.) and any financial accounts that do not have a beneficiary designation. This last part is huge, because it means that retirement accounts and life insurance policies (assuming you named a beneficiary) and any jointly owned property will pass automatically outside of probate.
Avoiding Fees – In NC, probate assets are subject to a fees of $40 plus $4 for every $1,000 of probate assets. So if your probate assets total $100,000, this would be a fee of $440.
Other states, such as SC, aren’t quite as probate-friendly, so if you don’t live in NC you should check out your state’s particular probate laws and fees.
Keeping things private – After wills are finalized and the estate is settled, wills become part of public record. So if you don’t want family members or others knowing what your will said or how much personal property you had, you can put these things in trust so that only the pour-over will and any remaining personal property would be subject to public records.
One of the best free estate-planning tools out there are utilizing beneficiary designations. Bank accounts and non-retirement investment accounts are often owned Joint Tenants with Rights of Survivorship which, as mentioned above, will avoid probate. But if you are single, divorced, or widowed you can add a Payable on Death (POD) designation on bank accounts or a Transfer on Death (TOD) designation on investment accounts which will act just like a beneficiary designation on a retirement account. This means that these assets pass directly to your heirs with no need for a trust.
For NC residents, utilizing this strategy will often only leave cars, jewelry, furniture and collectibles in the probate estate and is much quicker and less costly than setting up a revocable trust.
If you own real estate in several states, a revocable trust might be a good idea. Real estate is subject to probate based on the state of location, not your state of residency. You could end up going through probate in several states if you have a lot of real estate investments. In this case, owning them in a trust would avoid probate and likely be a good idea.
Similarly, if you have a more complicated estate, such as one involving a special needs beneficiary, a blended family situation or other complications, a trust may be a great idea. It may, in fact, be a different kind of trust, but if you think you have complications that most folks wouldn’t then you should certainly talk to a financial planner or attorney to give you some counsel regarding your situation.
If you do decide to use a revocable trust, then by all means make sure that you use it properly. I’ve seen on numerous occasions folks have spent the time and money to have a revocable trust written, and then either never execute the document or leave it empty. Having a trust in place does nothing if it’s not funded. So if you have assets that you want to pass through the trust and not your will, you have to have them retitled in the name of the trust.
Hopefully that helps steer you in the right direction. If you have any other questions or need some additional steering, please reach out and let us know. We’re happy to help you navigate these decisions and are thankful for the trust you place in us!
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