When to Consider Using a Revocable Trust

Revocable trusts can be very powerful estate planning tools. In fact, some lawyers believe that every client needs one. Others believe that they are never necessary. I think that they are a perfect fit for some people, and completely unnecessary for others. Below I will identify some of the specific situations that indicate that a revocable trust might be a good idea.

You may want to use a revocable trust if you want to determine when and how your substitute decision-maker takes over.

The first level of incapacity planning is a power of attorney. Most of the time, a power of attorney will work just fine. But one of the drawbacks of a power of attorney is that your appointed decision-maker can't overrule your decisions. So if you lose capacity, the only way your attorney in fact can stop you from making bad financial decisions is to file a guardianship proceeding and have you declared incompetent. A better way to handle incapacity is by using a power of attorney in conjunction with a revocable living trust. Instead of allowing a judge to decide how and when someone takes over, you can decide for yourself. In your revocable trust, you not only select who will serve as your successor trustee, you also write the rules for when that person takes over.

You may want to use a revocable trust if you wish to take extra steps to ensure that third parties will recognize the authority of your substitute decision-maker.

Sometimes financial institutions, long-term care facilities, or other third parties are reluctant to honor a power of attorney. They are more likely to accept the authority of a successor trustee than an attorney in fact because the trustee is the legal owner, not just an agent.

You may want to use a revocable trust if you have a family member who will not like the fact that you named someone else as your attorney in fact.

I have seen many cases where a family member who was not happy with the way an attorney in fact was handling a loved one's finances applied for guardianship. In one case a co-attorney in fact filed an incompetency case and asked to be appointed as sole guardian just because she did not want to share decision-making authority. When guardianship can be avoided, it should be. A fully-funded revocable trust will prevent guardianship because the assets are not owned by the individual. Instead, they are held in trust for the benefit of the individual. Therefore, even if a guardian of the estate was appointed, the guardian would not have access to assets held in a revocable trust.

You may want to use a revocable trust if you would like to control the funding of your trust yourself instead of leaving the administration to your Executor.

You know where your assets are located and the details associated with each. If you create a revocable trust, you can assist with the title transfers, beneficiary designations, and other administrative matters. If you use a will-based plan, the full weight of gathering and re-titling assets fall on the shoulders of your Executor. When you fund your trust, you will be forced to organize your assets. If you find that you missed a beneficiary designation during the funding process, you can fix the problem. If your personal representative finds that you missed a beneficiary designation, there could be expensive consequences.

You may want to use a revocable trust if you wish to avoid the expense and delay of probate.

Probate can be an expensive and time-consuming process. It can also be fairly simple. It depends on how much probate property you own. The court costs range from $150.00 to $6,000.00, depending on the size of your estate. If you own a business or an interest in a limited liability company that owns real estate, you can expect fairly high court costs. Attorney fees are usually higher to administer an estate than a trust as well. If you have a funded revocable trust, you have already done most of the work. In addition, your beneficiaries will not be delayed in their access to trust property. Your successor trustee will not be required to set up an estate, run a notice to creditors or wait for the availability of funds. Title doesn't change at your death.

You may want to use a revocable trust if you are concerned about privacy.

If you use a will-based estate plan, your will becomes a public record, as the inventories and accounts that are filed in your estate. The value of every account and every piece of real estate is listed on paperwork that is available to the public. Revocable trusts are private. There will be no court filings or other public records to show your assets. The downside to this is that the only one watching the trustee is your beneficiaries. If your successor trustee improperly administers the trust, the Clerk of court will not be there to catch the problem.

You may want to use a revocable trust if you have several different assets that you are leaving to several different beneficiaries.

Revocable trusts do a better job of distributing assets because you decide once how things will be distributed and then designate all assets to be paid to the trust. The trust gives one set of instructions for the estate rather than having to rely on multiple agreements, policies, beneficiary designations and contracts. 

You may want to use a revocable trust if you are designating a trust as the beneficiary of a life insurance policy or financial account.

There is nothing wrong with naming a trust created under a will as the beneficiary of a policy. But some people feel safer in naming a trust that already exists as the beneficiary. A will could be changed, lost or amended. Only an original can be probated. If you leave a beneficiary designation naming a testamentary trust created under a will, there is a chance that the trust will not be in existence at the time that it is funded. But if you create a revocable trust, it will exist at the time of the funding unless you have specifically revoked the trust.

Revocable trusts are not for everyone. They have to be funded in order to work. And they do make your estate plan more complicated. But sometimes a revocable trust is the right prescription for your particular needs.