Revocable Trusts

What is Probate and why does everyone want to avoid it?

What is a Revocable or Living Trust?

What are the advantages of having a Revocable Trust?

Will I lose any control over my property if I create a Revocable Trust?

Do I have to transfer all my assets to my Revocable Trust?

If I transfer title to real property to my Revocable Trust can the bank accelerate my mortgage?

Q: What is Probate and why does everyone want to avoid it?

When a loved one passes away, his or her estate often goes through a court-managed process called probate or estate administration where the assets of the deceased are managed and distributed.  If your loved-one owned his or her assets through a well-drafted and properly funded Revocable Trust, it is likely that no court-managed administration is necessary, though the successor trustee needs to administer the distribution of the trust assets.  The length of time needed to complete the probate of an estate depends on the size and complexity of the estate and the local rules and schedule of the probate court.

 Every probate estate is unique, but most involve the following steps:

  • Filing of a petition with the proper probate court
  • Notice to heirs under the Will or to statutory heirs (if no Will exists)
  • Petition to appoint Personal Representative (in the case of a Will) for the estate
  • Inventory and appraisal of estate assets by Personal Representative 
  • Payment of estate debt to valid creditors
  • Sale of estate assets
  • Payment of estate taxes, if applicable
  • Final distribution of assets to heirs

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Q: What is a Revocable or Living Trust?

A Revocable Trust can be used to hold legal title to your assets and provide a mechanism to manage them. You (and/or your spouse) are the trustee(s) and beneficiaries of your trust during your lifetime.  You also designate successor trustees to carry out your instructions as you have provided in case of death or incapacity. Unlike a Will, a Trust can be administered immediately after death. Your Revocable Trust is "revocable" which allows you to make changes and even to terminate it during your lifetime.   One of the great benefits of a properly funded Revocable Trust is the fact that it will avoid probate and minimize the expenses and delays associated with the settlement of your estate.

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Q: What are the advantages of having a Revocable Trust?

Like a Will, a Revocable Trust is a legal document that provides for the management and distribution of your assets after you pass away. However, a Revocable Trust has certain advantages when compared to a Will.  A Revocable Trust allows for the immediate transfer of assets after death without court interference.   It also allows for the management of your affairs in case of incapacity, without the need for a guardianship or conservatorship process.  With a properly funded Revocable Trust, there is no need to undergo a potentially expensive and time-consuming public probate process.   In short, a well-thought out estate plan using a Revocable Trust can provide your loved ones with the ability to administer your estate privately, with more flexibility and in an efficient and low-cost manner.

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Q: Will I lose any control over my property if I create a Revocable Trust?

Creating a Revocable Trust and transferring your assets to the name of that trust will not affect your ability to control such assets.  During your lifetime and while you are mentally competent, you have complete control over all your assets.   You may engage in any transaction as the trustee of your Trust that you could before you had a Revocable Trust.  There are no changes in your income taxes.  If you filed a 1040 before you had a trust, you continue to file a 1040 when you have a Revocable Trust.  There are no new Tax Identification Numbers to obtain.  Because a Revocable Trust is revocable, it can be modified at any time or it can be completely revoked if you so desire during your lifetime. Upon your incapacity, your successor trustee may take over the Revocable Trust which allows your loved ones to transact on your behalf according to the instructions you have laid out in the Trust. Upon your passing, the Revocable Trust can no longer be modified (it becomes "irrevocable") and the successor trustee(s) you have designated will then proceed implement your wishes as directed, such as transfers of  your assets to your beneficiaries.

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Q: Do I have to transfer all my assets to my Revocable Trust?

Assets with beneficiary designations such as a life insurance policy or annuity payable directly to a named beneficiary need not be transferred to your Revocable Trust.   Furthermore, money from IRAs, Keoghs, 401(k) accounts and most other retirement accounts transfer automatically, outside probate, to the persons named as beneficiaries. Bank accounts that are set up as payable-on-death account or transfer-on-death account (POD or TOD for short) or an "in trust for" account with a named beneficiary also pass to that beneficiary without having to be titled into your trust and without probate.  However, when you do your estate planning, it is important to seek the counsel of an experienced attorney who is familiar with the intricate regulations of retirement accounts and can coordinate the appropriate beneficiary designations with your overall estate plan to avoid negative tax consequences.

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Q: If I transfer title to real property to my Revocable Trust can the bank accelerate my mortgage?

Federal law prohibits financial institutions from calling or accelerating your loan when you transfer property to your Revocable Trust as long as you continue to live in that home.  An experienced attorney will assist you with getting lender approval on the transfer of the title to the Revocable Trust before recording the deed as well.  The only exception to the federal law, enacted as part of the 1982 Garn-St. Germain Act is that it does not provide protection for residential real estate with more than five dwelling units.  However, we find that most clients who do own residential property with more than five dwelling units tend to own them through a business entity and not directly in their individual names and hence are not concerned with the five dwelling exception.

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