Do I need a Revocable Trust?

In my nearly 30 years of practicing in the trusts and estates arena, I have come across attorneys who have set a threshold for providing clients with revocable troubles.  Some attorneys have said that if a person has at least $1,000,000, then they must do a revocable trust and the attorney will refuse to do any other type of planning.  I have seen different amounts, but the attitudes are the same.  I have a different perspective on the subject.

Before I tell you my perspective, let’s talk about what a revocable trust actually is.  It is not a difficult concept when you break it down.  You start with a written document.  It can be as short as three pages (the worst one I have ever seen) and it can be more than 100 pages, or any where in between.  The number of pages is not necessary a commentary on the quality of the trust. The bottom line is that a contract is created by the document wherein someone (the grantor or settlor) sets up a relationship between a trustee and one or more beneficiaries.  The trustee’s job is to manage the trust assets and make distributions when appropriate in accordance with the terms of the trust.  The beneficiary gets the benefit of the trust.  When dealing with a revocable trust, the Grantor creates the trust for his or her own benefit and even acts as his or her own trustee. The Grantor is setting up a financial care plan in case the Grantor becomes incapacitated and a plan for the distribution and management of his or her assets after death. The reason the trust is called revocable is because the Grantor can change it at will and even take it all back.

You might ask yourself why a person would set up a trust for his or her own benefit.  What’s the difference between having a trust and just keeping your money in the bank? Well, there are a few answers to this question. I will provide you with some reasons why revocable trusts are created.  Since I practice in Florida, we should start with the most important reason Floridian residents create revocable trusts.  They do it to avoid having their assets go through probate. Probate is the court system that is necessary to dispose of creditors at a person’s death and to change title of assets that were in the deceased person’s sole name. Probate, in South Florida, is a long and tedious process and can be costly.  If all the person’s assets are in a revocable trust, then probate can be avoided. The second reason for the revocable trust is to make things simpler if you become incapacitated.  If you have a trust and you become incapacitated, your successor trustee can just take over and manage your assets and take care of you.  It is easier than using the powers under a durable power of attorney.  Any other benefits of the revocable trust can also be accomplished through a well-drafted last will and testament that contains testamentary trusts if the person does not care about avoiding probate.

What are those benefits? Creating a trust allows the Grantor to control the ultimate disposition and distribution of assets.  It essentially allows you to control from the grave.  That might not sit well with you, but if it’s explained properly, you might change your mind.  Imagine a couple that has three young children, and they have a few million dollars in assets.  If they die, those children will need to be taken into someone else’s home and be cared for.  They will need to complete their education and then, hopefully, they will be launched into the world. I am sure the couple would want their children to grow up to be productive members of society and to work hard to achieve success. If they don’t have a trust, then, when the children turn 18, they can get all their share of the money and do with it as they please.  Maybe they will spend the money on college or maybe they will spend the money on cars and drugs.  The couple has no idea. If they set up a well-drafted trust, then the trustee will make sure that their needs are taken care of and that their education is paid for and that they always have a roof over their heads.  The Trustee will make sure that they can’t just blow the money on a Ferrari and partying. Better yet, leaving the money in trust will protect the money from the children’s bad marriages and aggressive creditors.  Since the parents won’t be around, they will not be able to help their children, but leaving their money in a trust allows them to provide security for the children without over-enabling them.  The beauty of the trust is that it can be customized.

When I sit down with clients and design an estate plan, I look at the make up of the family, the extended family dynamics, the finances and then I ask the client what they want to accomplish.  Only after I have all the information and I have educated the client on the different options; do we determine if a revocable trust is appropriate. There is no monetary amount that requires a person to do a revocable trust.  It is a conglomerate of circumstances. Decades ago, I had one client who was an elderly man in his 90s and he had about two million dollars. He wasn’t married and he had no children or grandchildren.  He didn’t care if his assets went through probate and felt that he would rather not pay to have the trust done.  He left everything outright to one nephew.  From a monetary standpoint, he would have paid, at that time, about $1,000 for the trust, whereas the probate of his estate was about $25,000 and could have been a lot more.  It didn’t bother him because he wasn’t going to be around.  Since he had no interest in keeping the money in trust after his death, he didn’t really need a trust except to save money and avoid probate.

The bottom line is that a person needs to be educated before he or she decides about creating a trust.  It’s a good document to have but it’s not for everyone.

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