Managing your assets can take plenty of time. To simplify that often complex task, you should consider creating a revocable trust.
Remember, you can use trusts to shield your assets. You can manage your assets easier if you keep them in a trust. The trust also ensures that someone will distribute your assets properly if something bad happens to you.
Does creating a trust sound like a good idea? Before you proceed with any plans to create a trust, you should learn more about the available options first. We will do exactly that in this article.
Stay tuned to learn more about revocable trusts and the benefits they provide.
What Is a Trust?
Before we discuss anything else, let’s first pin down the definition of a trust.
A trust is a fiduciary relationship established between a trustor and a trustee. The trustor is the one who puts assets into the trust, while the trustee is the party who is granted possession of the assets following the trustor’s passing.
Trustors can also create something known as a living trust. A living trust is something a trustor can use to their benefit.
As we noted earlier, you can use trusts to hold assets. You can keep assets in a living trust to avoid certain taxes.
The living trust will also be useful if you want to make asset management a significantly easier task. It is easier to manage your assets because many of them are in one place.
New York State does not require residents to create trusts for any specific reason. The state even notes that a trust may be established “for any lawful purpose.”
Notably, you must first transfer assets to a trust before they can benefit from its protections. In your case, that could involve creating a new bank account for the trust that will hold some of your money. You can also keep a house or a vehicle inside the trust assuming proper documents have transferred ownership of those assets.
Defining Revocable Trusts
While going through the process of establishing your living trust, your estate planning attorney may ask you a question. Do you want to create a revocable trust or an irrevocable trust?
Take your time responding to that question because your answer will have long-term ramifications.
As you have probably guessed, the difference between a revocable and an irrevocable trust boils down to whether you can change them or not. You can amend revocable trusts, while irrevocable trusts you cannot. Well, technically you can amend an irrevocable trust, but the process is way more complicated.
Creating a revocable or irrevocable trust is also pretty simple. You only include a few lines in the official document indicating whether you want your living trust to be revocable or irrevocable. Work with an attorney to ensure that the lines you include in the document are appropriate.
The Benefits of Creating a Revocable Trust
We now have a clear idea of what a revocable trust actually is. At this point, you need to determine if you need a revocable trust or something else entirely.
To do that, you should take a closer look at a revocable trust’s benefits and drawbacks. We will start by highlighting the benefits of that legal device below.
Revocable Trusts Are Easily Changed
The main reason you should opt to create a revocable trust is that you can change it easily.
Circumstances change as you grow older. Good relationships you previously had may turn sour, and some people in your life may do things that show that they are not worthy of your generosity.
Due to those developments, you may feel that the terms of your trust no longer accurately reflect your wishes for your estate. You may realize that making changes to the trust is necessary.
If you ever find yourself in that situation, you will be glad you signed up for a revocable trust. Revocable trusts are easy to amend. Making any change will not become some long, drawn-out affair.
Those who set up trusts early should look into creating revocable trusts so they can make changes whenever they need them.
Revocable Trusts Do Not Need to Pass through Probate
For those who may be unaware, probate is the process performed on each will. The purpose of probate is to determine if a will is legitimate. If the probate process finds a will legitimate, that document will guide the asset distribution.
Although probate is useful for closely scrutinizing wills, there are downsides to it as well.
For instance, the probate process can take a long time. Do not be surprised if the examination of a single will takes several months. Expect the process to drag on even further if the will mentions several properties based in different states.
Some people are not fond of probate because it can reduce the inheritance of the beneficiaries. The beneficiaries will pay fees before a will goes through probate.
Since the filing fee for probate depends on the dollar value of the estate, it is not difficult to see how those payments could get out of hand. By the time your beneficiaries receive their inheritance, it may already be well below what you wanted them to receive.
If you prefer not to subject your loved ones to the probate process, then opting for a revocable trust is clearly the move. Give them a way out of that situation and make sure they can head home with more money in their pockets.
Revocable Trusts Keep Your Estate Private
One more downside of the probate process that we did not mention earlier is the way it exposes your assets. Whenever a will goes through probate, it becomes open to the public.
Anyone at the courthouse the same day your family is going through probate can check out your will. They can also pick up some pretty significant details, such as the identity of your beneficiaries.
No one likes getting exposed like that, and that is why going through probate is not something many people enjoy.
You can shield your beneficiaries from that by opting to create a revocable trust.
Trusts do not need to be settled in court, so their contents are not exposed. Your beneficiaries can still claim their inheritance without being subjected to the prying eyes of the public.
Revocable Trusts Shield Your Beneficiaries from Conservatorships
You may establish conservatorships in situations where the parent responsible for their child’s finances becomes incapacitated. The court-appointed conservator assumes financial responsibility for the child.
The conservator may decide to enact some strict rules to limit your child’s spending. Your child may not buy certain things because their conservator deems them unnecessary. That kind of thing could happen whether you like it or not.
You can see how being under a conservatorship can be bad for a child. Unfortunately, they may endure that if you did not set up protections beforehand.
Setting up a trust will protect your child from that potential fate. As long as the successor named in your revocable trust can handle their duties, you can be confident that your child will be cared for properly. Your child’s quality of life will not be determined by the whims of a conservator.
The Drawbacks of Creating a Revocable Trust
Let’s use this next section to discuss the drawbacks of establishing a revocable trust. Go through each one carefully because you could run into a deal-breaker.
Transferring Assets to Your Revocable Trust Can Be Expensive and Time-Consuming
Earlier, we mentioned that you must first transfer assets to a trust before they can receive the benefits of that legal device. It is time we circle back to that.
You see, transferring your assets to your trust is easier said than done. In all likelihood, you will need to acquire numerous documents and pay tons of fees to complete the necessary transfers. Both you and your lawyer will probably work on that for several months.
Consider yourself lucky if it only takes that long because transferring all your eligible assets to the trust can take time.
Do you have the time to complete all those transfers? That is a legitimate question you need to ask yourself before you move forward with any plans to create a trust.
If you do not have the time or money to go through that, creating a revocable trust may not be for you.
Creditors Can Still File Claims against Revocable Trusts
While revocable trusts protect your assets from the prying eyes of the public, their coverage is still lacking in certain areas. To be more specific, the assets you keep in your revocable living trust do not get shielded from creditors.
You cannot ignore those creditors. Compensating them is something you must do unless you want to get in trouble with the law.
Once your creditors take their share, the total value of your assets remaining in the trust may become considerably lighter.
You May Still Need to Draw Up a Will
After reading this article, you may have assumed that one of your big decisions during estate planning is choosing between a trust and a will. To be fair, that guess would be correct in most situations.
However, there are situations where you will need both.
First off, you may have purchased a new home recently. When you first bought it, you neglected to place it in your trust, so it is still considered your possession. You want to include that new home in your revocable trust but doing so may not be possible right away.
Transferring the deed takes longer than expected, so it is in a state of limbo. To ensure that the new property in question still ends up in the hands of its rightful owner, you may need to create a will for it.
On top of that, you cannot include some assets cannot in a revocable trust. If you intend to distribute those assets properly to your beneficiaries, you will need to discuss that in a will.
Choosing to create a revocable living trust does not mean that you can completely avoid putting together a will. You may still need both when everything’s said and done.
How Are Trusts Revoked?
Revoking a living trust may become necessary due to changes in your personal relationships. It may also be necessary because you have accumulated plenty of new assets. Transferring them one by one to your existing trust may not be something you want to go through, so you want to revoke the trust altogether.
So, how does one go about revoking the living trust?
As the trustor, you can revoke the trust by creating a special document. The document is a written notice that clearly outlines your intentions to dissolve the trust.
Trustors should deliver written notice of the trust’s revocation to at least one trustee if they are not the sole beneficiary. They should also deliver that notice within a reasonable amount of time. However, your inability to deliver that notice will not stop the trust from being revoked.
A notary public must be present when you sign and date that written notice.
You can also effectively revoke a trust by transferring its assets. Transfer whichever assets you are keeping to another trust so you can organize them better. The older trust will no longer have value once you transfer all its assets.
Also, the law can revoke irrevocable trusts, but the process takes significantly longer. You will likely need to go through the courts to dissolve an existing irrevocable trust.
New York law also allows a trustor to revoke an irrevocable trust using a will.
Do you need help drawing up a revocable living trust that is perfect for your current situation? If so, we at the Alber Law Group would like to offer our assistance. Contact us today and let us help you craft your revocable trust properly.