Is a Revocable Trust Right For you?

There is a myth out there, propagated by some, that “Wills are obsolete.” The revocable trust (also called a living trust), these people will say, is the only estate planning solution.

I think I speak for most New York practitioners in saying that not only is this not true, but it is misleading potentially to the client’s detriment.

There are certainly times when a living trust is better, and this post is to try and summarize when a revocable trust might be the better option over a will and visa versa. After reading this, you may be better equipped to judge for yourself whether a living trust is worth the higher up front expense.

Let’s start, though, with some basic terminology. We know what a will is, but what is a revocable trust? It is an agreement between you, individually (called the “Grantor”), and yourself, as trustee, to hold certain assets under certain terms and conditions. It provides for the administration of the assets while you live and when you pass. It is very similar to a will with respect to the “after death” portion and, for that reason, a revocable trust is considered a “will substitute.”

The following are some of the advantages of a revocable trust:

  • Avoidance of probate: probate only covers assets in an individual’s sole name. As such, by transferring assets from one’s individual name into a living trust, the assets will pass according to the trust automatically upon the death of the Grantor without court involvement. This will avoid the time and expense of probating the will in Surrogate’s Court.
  • Asset management: the trust provides a convenient and ready structure for asset management in the event the creator of the trust becomes unable to manage the assets his or herself. A successor trustee is named in the trust who would take over management of the trust assets if the original creator/trustee becomes incapacitated, thereby avoiding the necessity of a guardianship proceeding.
  • Avoidance of delay in immediate distribution: unlike a Will, there is no proceeding necessary to establish the validity of a revocable trust at the death of the Grantor. A trustee is free to sell assets, pay bills, and even distribute the assets without delay at death.
  • Less likely to be challenged: since the revocable trust does not need to be filed with the Court, the beneficiaries and heirs of the estate will not necessarily be notified of its provisions nor be given an opportunity to challenge the document.

There are several “disadvantages” of a revocable trust that should be considered in making an informed decision.  First, the upfront cost of a revocable trust can be double if not triple the expense of a Will. Second, the Grantor must be diligent to transfer all assets into the trust at the outset and thereafter stay on top of this requirement since a trust is only effective to the extent there are assets in it. Some people find this requirement of transferring assets into the trust, including one’s home, burdensome and unnerving, although there is no drawback from a legal perspective. Third, the trustee will still need to do many of things that the executor would need to do in the probate process including settling debts and expenses of the Grantor and accounting to the beneficiaries.

So the question becomes, when do the advantages justify the disadvantages since in those cases, it is fair to say the revocable trust is the better option. While every case must be analyzed on an individual basis, the following are some common factual scenarios where a revocable trust will generally be the better option:

  • Where Grantor has property in multiple states or countries insofar as the revocable trust will not only avoid probate, but also ancillary probate in other locations.
  • Where the Grantor is elderly insofar as the revocable trust will be a ready tool in the event the Settlor becomes incapacitated in the near future.
  • Where the Grantor feels strongly about keeping his or her financial and other affairs private and not open to view as a public record in the Surrogate’s Court
  • Where the Grantor anticipates that some beneficiary may contest his or her estate document
  • If none of these scenarios are present, a simple Will may meet a person’s needs without undue burden or expense.

In sum, one should not be persuaded by those who say that “Wills are obsolete,” but approach the decision of whether to have a will or a revocable trust in an informed way after weighing the pros and cons for one’s own particular situation.