The Power of Revocable Trusts
Revocable trusts are quite powerful because so many goals can be achieved in one legal document. For example, estate taxes can be avoided or minimized, probate administrations eliminated, financial monitoring provided for the young or for those who are unable to manage their own financial affairs, and protection given when there are separate sets of beneficiaries, such as children of a prior marriage. A trust is private—unlike a will, it is not filed in probate court unless litigation is involved, which is rare.
Massachusetts estate taxes can be avoided or minimized for estates up to $2 million dollars if each spouse of a married couple signs a revocable trust and immediately funds the trust. By funding the trust, I mean transferring money, real estate and other noon-retirement benefits into the trust before the death of the owner. A properly drafted trust can be named the beneficiary of retirement assets.
The power of trusts is also their flexibility and/or when “bells and whistles,” special instructions, are needed, as long as the directions can be stated in clear terms and the trustee can legally perform those directions. For example, “My trustee shall give (my named beneficiary) (the money) six years from the date of my death, only if (my beneficiary) provides a letter from an addictions counselor and my trustee accepts such letter that, in my trustee’s sole and absolute discretion, (my beneficiary) has been clean and sober the previous five years, etc. If (my beneficiary) fails to produce such letter within six years from the date of my death, this gift shall lapse and be given to (other beneficiary).” I create similar language for many different situations, such as how funds are to be used for educational purposes, when houses and other real property can be conveyed, and so on. I do not recommend a trust unless it is needed for a particular priority.
Trusts do not stand alone in a person’s estate plan. Everyone who has a trust (frankly, everyone over age 18, with or without a trust) must also obtain what I call, “The Big Five”: a will, health care proxy, durable power of attorney, advance directive, and HIPAA release (see www.jlawma.com).
Revocable trusts are not the only type of trusts. By one example, a supplemental needs trust is critically important when the goal is to shelter assets for the benefit of a disabled beneficiary.
Trusts are a powerful estate planning tool!