So, is a revocable living trust the only means to dispose of your estate?
[Spoiler alert: probate is not "The Plague" and revocable living trusts are not a panacea.]
The truth, as is oftentimes the case, depends on the unique case-by-case circumstances.
Against that backdrop, a recent MoneyWatch article, titled “5 reasons you need a trust, not a will,” lists five reasons for using a revocable living trust as the primary method for disposing your estate.
1. Pass on assets privately, quickly and efficiently.
A revocable living trust affords your beneficiaries some privacy when it distributes their inheritance.
True, unlike a last will and testament, a revocable living trust is not filed (in most jurisdictions, that is) with the probate court and, therefore, does not become a matter of public record.
In addition, property transferred into a revocable living trust during your lifetime is not subject to the expense and delays of probate.
First, unless you are Michael Jackson, few folks give a hoot about what you own at death. Really.
Second, the expense and delays of probate are commonly overstated.
In my 30 years of experience, the key to a successful estate plan rests with one salient fact - was accurate and up-to-date information left behind regarding assets and documents for those who must wrap things up?
In a state like Missouri which has a statute (see RSMo. Section 473.153) providing for personal representatives and attorneys to receive a compensation in the form of a minimum "commission" based on the value of assets passing through probate, then probate may be worth avoiding.
However, that very statute provides that a lesser form of compensation may be set in the will itself.
Solve: In my will-based plans I provide that compensation for personal representatives and attorneys shall be based on the "lesser" of the minimum commission or a "reasonable fee" standard, as provided under Kansas statutes (see KSA 59-1717).
2. Preserve assets for heirs and charities.
Changes can be made by you to your own revocable living trust anytime while you are alive and have the legal capacity to do so.
When you become incapacitated (think coma or dementia), the trust becomes irrevocable.
At your death, the provisions regarding the disposition of assets to your heirs and charities will be administered by your trustee under the your terms as spelled out in the trust.
You may change your will at anytime while you are alive and have the legal capacity to do so.
When you become incapacitated, the will becomes irrevocable.
At your death, the provisions regarding the disposition of assets to your heirs and charities will be administered by your trustee under the your terms as spelled out in the "testamentary" trust created under the terms of your will.
3. Assets that remain in your trust after your death typically aren’t considered marital property.
Those assets are not subject to division in a settlement, if the beneficiary gets divorced.
However, in many states, a divorce court may take the beneficiary's income interest into consideration when determining the division of marital property or support obligations.
No difference here, either.
Suggestion: make distributions of both income and principal "discretionary" to avoid marital property and support obligations.
After all, this is why we have "spendthrift" provisions under our Uniform Probate Codes in Kansas and Missouri.
4. Retain control over distributions.
A trust can contain language that provides when distributions of income and principal will be available to beneficiaries, and it can provide for distributions for specific purposes like education or health care expenses.
A trust can also include language for distributions based on attaining specific ages. For example, one-third of the principal is distributed at age 30, half at 35 and the rest at 40.
A testamentary trust created under a will can walk and talk just like this.
5. Distribute retirement accounts efficiently.
If the trust is the beneficiary of your retirement accounts—such as IRAs—and it is written correctly, the trustee can limit withdrawals to the retirement account's minimum required distributions based on the life expectancy of the oldest beneficiary.
This avoids the mistake of a beneficiary liquidating a retirement account and triggering a large income tax obligation.
The same goes for IRA distributions to a "conduit" testamentary trust under a will.
In the end, only through a consultation with an experienced estate planning attorney can you evaluate the proper way to approach your estate plan in the most cost-effective manner.
Beware of anyone who tries to sell you on a "one-size-fits-all" solution!
Personally and professionally, I am a big fan of both revocable living trusts and wills.
The key is helping each client select the most appropriate tool for their unique circumstances right now ... and adjusting in the future as changes most certainly will occur.
So, how do you find an "experienced" estate planning attorney?
First, ask around. Friends, family and other professional advisors are trustworthy sources.
Second, conduct an "organic" search on "Google" for "estate planning" near you (e.g., "estate planning Overland Park KS".
Third, either way, verify. Check out the education, experience, ratings and client reviews of any attorney before you contact him or her.
In fact, I use both of these services to thoroughly vett attorneys before referring members of our "client" family for legal help in other areas of law or for matters in jurisdictions outside Kansas or Missouri.
Remember: “An ounce of prevention is worth a pound of cure.” When making your financial, tax and estate plans, do not go it alone. Be sure to engage competent professional counsel.
For more information about estate planning in Overland Park, KS (and throughout the rest of Kansas and Missouri), visit our estate planning website and be sure to subscribe to our complimentary estate planning e-newsletter while you are there.
Reference: MoneyWatch (September 17, 2015) “5 reasons you need a trust, not a will”