What is a Revocable Trust
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A revocable trust is a trust you can revoke at any time during your lifetime. Many different kinds of trusts can fall within this category- the key defining element is that you can change your mind later. Unless you are creating a trust to protect assets from long term care costs, remove assets from your estate for estate tax purposes, or for other reasons that require an irrevocable trust, a revocable trust provides you maximum flexibility. Below are some of the main goals you can accomplish with a revocable trust.
Avoiding ProbateAssets that are placed into trust during your lifetime will pass automatically upon your death, without the need for the probate process. In the case of real estate, this means the trustee will immediately have legal authority to manage the property, including selling it if that is consistent with your wishes as set forth in the trust. In contrast, if that property were to pass through probate court, it could be months before anyone had the authority to do these things.
The other benefit of avoiding probate is that a probate proceeding is public record, while distributions by a trustee are private in nature. Distributing through a trust will keep your decisions about your legacy private, and also protect your heirs from others knowing what they have inherited. Managing Minor Children's InheritanceIf you have minor children or grandchildren who will inherit from you, it can be a cumbersome process to set up vehicles to oversee their inheritance during the probate process. Without a trust, you also do not have any control over who is trustee, or what roadmap or standards you would like them to follow in managing assets for your heirs.
With a trust, you can specify the trustee, and as much or as little detail as you would like about priorities for spending down those assets. If education is a priority for you, for example, you can make it a priority that the trustee preserve as much as possible for their college education. One nice thing about a revocable trust for this purposes is that as your children or grandchildren grow, your thoughts and wishes for them may adjust, and you have the absolute right to amend or revoke the trust anytime you wish. |
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Managing Transitions for Family Property
It is not uncommon for a family that has a unique family asset- a vacation home or a family farm, for example, to struggle when suddenly a number of siblings are co-owners instead of one person or one couple. It gets even stickier if there are multiple generations inheriting the property.
The parents who are the primary owners frequently want to set some guidelines to reduce family strife and protect whatever values they associate with the property. We have seen many of these people try to spell this out in their wills, not knowing that this does not work. A will only determines who receives property out of probate- the probate court has no authority to dictate what the heirs do with the property afterward.
This is where a revocable trust can help- the trust document can appoint one or more trustees, and provide the blueprint for how decisions should be made about the property. The property can be deeded directly into the trust when it is created, or the parents can dictate that on their death the property will go to the trust.
The parents who are the primary owners frequently want to set some guidelines to reduce family strife and protect whatever values they associate with the property. We have seen many of these people try to spell this out in their wills, not knowing that this does not work. A will only determines who receives property out of probate- the probate court has no authority to dictate what the heirs do with the property afterward.
This is where a revocable trust can help- the trust document can appoint one or more trustees, and provide the blueprint for how decisions should be made about the property. The property can be deeded directly into the trust when it is created, or the parents can dictate that on their death the property will go to the trust.
Minimizing Estate Taxes (Sometimes)
In general, property is still considered part of your taxable estate if it is transferred to a revocable trust. There is, however, one way in which revocable trusts can help shield your family from estate tax liability. If set up correctly, a married couple can essentially share their estate tax exemptions.
For example, in Massachusetts the estate tax threshold is $1 million per person. That means if your taxable estate- which includes jointly owned property that passes outside of probate, life insurance proceeds, and investment or bank accounts with designated beneficiaries- exceeds $1 million, your estate will owe taxes, starting at approximately $36,000. If those assets total $999,999, your estate will owe nothing. When the first spouse dies, the surviving spouse is entitled to an unlimited exemption for anything they inherit, but without estate planning, the bill will become due when the second spouse passes holding assets that exceed the $1 million threshold.
Certain trusts, often called AB trusts or family trusts, allow this married couple to pool their $1 million exemption, meaning collectively they will have $2 million in exempt assets even at the death of the surviving spouse.
Other trust-based estate tax planning strategies require irrevocable trusts, but this kind of revocable trust is something that all married couples should at least consider.
For example, in Massachusetts the estate tax threshold is $1 million per person. That means if your taxable estate- which includes jointly owned property that passes outside of probate, life insurance proceeds, and investment or bank accounts with designated beneficiaries- exceeds $1 million, your estate will owe taxes, starting at approximately $36,000. If those assets total $999,999, your estate will owe nothing. When the first spouse dies, the surviving spouse is entitled to an unlimited exemption for anything they inherit, but without estate planning, the bill will become due when the second spouse passes holding assets that exceed the $1 million threshold.
Certain trusts, often called AB trusts or family trusts, allow this married couple to pool their $1 million exemption, meaning collectively they will have $2 million in exempt assets even at the death of the surviving spouse.
Other trust-based estate tax planning strategies require irrevocable trusts, but this kind of revocable trust is something that all married couples should at least consider.
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Jenna Ordway
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We are ready to help. We have a simple process for getting you from wherever you are now to executed and final documents. It starts with an initial consultation, which is absolutely free. You can use the button below to schedule a free information call, or simply give us a call at 781-784-2322.
