Revocable Trusts are Much More Than a Tool to Avoid Probate

Revocable Trusts are Much More Than a Tool to Avoid Probate

By: Martin M. Shenkman, CPA, MBA, JD

Yes, revocable trusts (living trusts, loving trusts, etc.) can avoid probate. But, in most cases (yawn!), that just doesn't get as exciting as Dancing with the Stars! The real problem with revocable trusts are the clients (or perhaps more correctly, prospective clients) that have attended the free seminar at the local [fill in the blank], and are so focused on avoiding the purported evils of probate that they don't permit their estate planners (attorneys, CPAs, wealth advisers) to do the real planning. The reliance on the revocable trust as the cure all and magic bullet, nor serves as a distraction from addressing real issues for which neither magic bullet or a cheap on line website will suffice. Too often core investment, tax, insurance and asset protection planning all gets dismissed because of the belief that a revocable trust does all. The trust mills that crank these “documents” out, and the hucksters that push them, prevent many people from “taking care of business.” All a good topic to educate the public about during National Estate Planning Awareness Week which begins tomorrow (exciting, huh!). Revocable trusts, when done well, are very powerful planning tools. We’ve used them as an inexpensive (e.g.., as contrasted with a BDIT) tool to isolate gifted or inherited assets to make commingling more difficult and hence to preserve their immune status from equitable distribution. Yes, as many said in earlier posts they are powerful tools for planning for incapacity. But incapacity is not a yes/no switch there are many fine gradations of gray from competency to incapacity. Creating a trust with a co-trustee (often the institutional wealth manager or another institution) is a great way to build in protection to keep a client with growing health issues in control of his or her finances. Provisions requiring a periodic (e.g. quarterly) in home interview and report from an independent care manager is a great way to protect an elderly or ill client from elder financial abuse or worse. Sometimes, certain assets can be segregated into a living trust to provide for more complex management than a power of attorney can reasonably be used for. There are a myriad of useful and creative applications once the client looks beyond the trite “evils of probate” application.

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