Why Are Trusts So Popular?

Revocable living trusts (RLT’s) are popular estate planning tools because they afford the creator peace of mind in knowing that their trust property will not go through probate and will immediately vest legal title in their named successor trustee. They are popular because it is simply the best way to keep your financial affairs private and to keep legal fees, administrative expenses and court costs down. In addition to using RLT’s to keep your financial affairs private, it is popular to leave assets to loved ones “in trust” as opposed to free of trust because you can make sure your assets will not be lost in a divorce or in some other lawsuit or creditors claim.

You can leave assets to a loved one in a way that places no real limits on the loved one’s use and control of the assets, but because it is left to the loved “in trust” the assets will be “off the table” in a divorce or lawsuit. Also, while your loved one can be allowed to invade the principal for their needs in their accustomed manner of living, we can make it so the assets will escape federal estate tax exposure in their estate.

Let’s say Jack and Jill have one son named Jack, Jr., and one grandchild named Jack, III. Let’s say Jack and Jill have a variety of assets worth about 1.5 million. Let’s say Jack and Jill are unfamiliar with the benefits of trust law and so have a simple Will based estate plan where everything goes to the other free of trust, and when the survivor passes to Jack, Jr. free of trust. If that is their plan, then Jill may inherit the assets (which are listed on a form fully accessible by the public), but they will not be protected and they could be exposed to the estate tax in Jill’s estate. Also, when Jack, Jr. gets what is left, the costs to the court alone will likely exceed $2,000 and much more if there is real estate in other states. Also, when Jack inherits what he does, after court costs and legal fees, since he inherited assets “free of trust” he can then lose these assets in a divorce or lawsuit. Using RLT’s to avoid probate and leaving assets“in trust” can avoid all these problems. That’s why trusts are so popular.

Contributed by: Mark F. Winn, J.D., Master in Estate Planning, a local tax, asset protection and estate planning attorney. Submitted for Bluffton Sun and Hilton Head Island Sun