A revocable trust is a trust that is established inter vivos (during one’s life). It is a widely used tool in estate planning, and one of its advantages is that it can be amended or revoked.
The Estate Law Center, PLLC, is a big advocate of revocable trusts, but only if the benefits outweigh the costs. The following are a number of the key considerations for establishing a revocable trust.
Owning Real Property in a Foreign Jurisdiction (Outside of Virginia)
If the client owns real property (land or land with improvement(s)) within Virginia and in a foreign jurisdiction (a location outside of Virginia). Real property is probated within the jurisdiction within which it is located. Therefore, if you have real property outside of Virginia, and you have not funded your real property into your trust, your executor will have to submit your will for probate in Virginia, as well as in the foreign jurisdiction.
Avoidance of Probate
When a client wants to avoid probate, perhaps for ease of transfer of assets or for privacy, a revocable trust is ideal. The probate process is not something to necessarily fear as it is systematic – that is until the components of human relations come into play. One may also want to avoid the entire reporting process of filing an inventory and annual accountings until the estate is distributed.
Ease of Transfer
When a revocable trust is properly funded, the trustee (usually the trustor) will manage the assets in the revocable trust. If the Trustee becomes mentally incapacitated a successor trustee seamlessly steps up and manages the assets for the care of the trustor, without the need for someone to petition the court for an order for conservatorship.
Decrease the Risk of a Contest
A frequent misconception is that a revocable trust cannot be contested. A revocable trust can be contested; however, such a contest is less likely to be won that a will contest. A will is effective upon death. A revocable trust is effective upon signing. If the terms of a revocable trust are contested, the terms of the revocable trust are more likely to be upheld than a will, as the belief is that the revocable trust has been in effect for years, and if the trustor had wanted to change the terms of the revocable trust he would have, thus we will honor the terms.
The use of revocable trusts for succession planning can often be ideal, especially when a business interest, such as an LLC, is involved. In addition to the use of s revocable trust, comprehensive succession planning takes into account the terms of the controlling management terms, for example an Operating Agreement that governs an LLC.
Preparation for Tax Consequences
In the event that a client’s estate has the potential to reach or has already exceeded the federal estate tax exemption, it is important to minimize a client’s estate’s tax exposure at his passing, by the possible inclusion of bypass trust language.
In the event that a client desires to maintain assets in trust for a period of time that extends beyond his death, perhaps for the benefit of another, then a revocable trust may be an ideal consideration, as a testamentary trust (a trust created through the terms of a will), though often an alternative, has its drawbacks.
To learn more about revocable trusts and which one may be right for your situation, call the Estate Law Center, PLLC, today at 540-827-4395 or contact attorney Katherine Breckenridge (formerly Katherine S. Charapich) through our online contact form.