Understanding the Benefits of a Revocable Trust
I am often asked, “Why should I hire an attorney to prepare estate planning documents? Won’t everything I own simply pass to my children under the intestacy statute?” While that may be true in some cases, relying solely on intestacy laws often results in unnecessary court involvement, delays, and additional costs. Proper estate planning allows you to use legal tools that simplify the transfer of your assets to loved ones, preserve privacy, and reduce administrative burdens.
This is the first in a series of articles explaining why working with an attorney to develop and draft an estate plan can be beneficial. One of the most important—and most commonly used—tools in an estate planner’s toolbox is the revocable trust.
What Is a Revocable Trust?
A revocable living trust is a versatile tool designed to hold and manage assets during your lifetime and facilitate their distribution after your death. Unlike an irrevocable trust, a revocable trust can be changed, amended, or revoked at any time during the settlor’s lifetime so long as the settlor remains competent. (The settlor is the person who creates the trust.)
A comprehensive estate plan commonly includes both a will and a revocable trust:
The will typically contains guardianship provisions for minor or incapacitated dependents and often directs the executor to transfer any assets owned individually at death into the revocable trust.
The revocable trust serves as the primary vehicle for holding and distributing assets.
This type of revocable trust does not spring into existence until it is funded—that is, until assets are transferred into the trust. Many revocable trusts remain unfunded until the individual’s death.
This article discusses the general benefits of a revocable trust. Article Two will explain the reasons to fund a revocable trust while living. Article Three will address which assets are typically appropriate to transfer into a revocable trust and how those transfers are made.
Administrative Ease and Flexibility
One of the primary benefits of a revocable trust is the ease of maintenance. In most cases, amending a revocable trust typically requires your signature and notarization. Additionally, a revocable trust allows for streamlined updates as your family circumstances, financial situation, or planning goals evolve it can streamline updates.
While a Will requires strict statutory formalities—including multiple witnesses—to be valid in North Carolina. In addition, wills are executed in a manner so they are “self-proving”– which requires two witnesses and a notary. Retirement or insurance beneficiary changes require tracking down and filing new beneficiary forms for every single account every time your wishes change. A revocable trust is a private contract. Once the trust is established as the primary 'hub' of your estate, you can often update your entire distribution plan simply by amending the Trust.
An experienced estate planning attorney is well equipped to draft your estate plan so that your revocable trust serves as the ‘hub’. Ideally your documents will be drafted so that if your circumstances change, such as a divorce or your children become dependent adults, you can adjust your estate plan by modifying just the revocable trust. Under North Carolina law, a divorce does not automatically revoke a beneficiary designation in a life insurance policy unless the policy explicitly provides for that. It is an all-too-common story to hear about an individual whose circumstances changed and maybe he or she remembered to update the will, but forgot to update the life insurance beneficiary designation.
Privacy
Assets that pass through a will are subject to the probate process. Once a will is filed with the court, both the terms of the will and an inventory of probate assets—including their values—generally become part of the public record. Anyone with sufficient curiosity or motivation can request and review a probate file.
A revocable trust, by contrast, is not filed with the court, and its terms, beneficiaries, and assets remain private. This confidentiality can be particularly important for families who value discretion or have complex or substantial assets.
Note for this privacy protection to apply, the assets must be held in the revocable trust prior to death. The assets that are titled in your name at your death are subject to the probate process even if your will directs the assets to your trust.
Potential Asset Protection for Beneficiaries
A revocable trust can also increase the level of asset protection available to beneficiaries, particularly for beneficiary-designated assets such as life insurance policies, IRAs, and retirement plans. If a life insurance policy is payable to your estate, the proceeds become estate assets and may be accessible to estate creditors. If a life insurance policy is payable to a beneficiary, it will generally be exempt from your estate creditors, but it will be accessible to the beneficiary’s creditors. If instead the policy is payable to your revocable trust, the trust terms can control how and when beneficiaries receive the proceeds and may offer greater protection from creditor claims, divorcing spouses, or poor financial decisions by a beneficiary.
Summary
If any of these benefits provided by a revocable trust seem worthwhile, please reach out. Helen is available to meet with you and discuss options for an estate plan that meets your goals.