The Revocable Living Trust: It Was Never About Estate Tax Savings

By Daniel A. Perry, Esq.

I was recently speaking with a client who said to me “Dan, I have a simple situation. My financial advisor said all I need is a simple will, powers of attorney, and advanced healthcare directives. My financial advisor told me that since all my accounts have beneficiary designations and my estate will not be taxable, a living trust is just not necessary for my situation.”

I am routinely amazed about the misconceptions that exist when it comes to estate planning. Therefore, let me go ahead and correct one glaring misconception about living trusts.

Whether You Have a Taxable Estate or Not, a Living Trust Will Not Help You Avoid Estate Taxes

Now, there are several strategies that include life insurance, irrevocable trusts, dynasty trusts, charitable planning, and gifting strategies that can help to limit and avoid estate taxes. However, a revocable living trust is not one of them.

Also, there are many circumstances where relying on beneficiary designations can backfire.

There are a number of benefits that a revocable living trust can provide for families including:

  • Enabling your children to sell your home after you die without having to let potential buyers slip by for months or years waiting on a probate procedure to conclude;
  • Designating trusted family members to handle your financial affairs while you are alive when you can’t;
  • Preventing each of your heirs from being forced to hire an attorney to settle your estate;
  • Having your future medical decisions – including your decisions regarding life-support machines – documented so your family is not burdened;
  • Keeping your financial accounts from being locked down and frozen when you die;
  • Preventing your estate from being dragged through a public probate proceeding while your heirs wait and wait;
  • Preventing that overbearing son-in-law or daughter-in-law from causing problems during the estate settlement and obtaining “their share of the inheritance”;
  • Protecting your adult children’s inheritance from divorce and creditor claims;
  • Protecting your IRA from your adult child or children blowing through the inherited IRA, and creating a mandatory distribution schedule of that IRA;
  • Planning to provide for a charity after death while still receiving an income tax deduction for the year in which the estate plan was initially set up;
  • Planning to protect your estate during your lifetime from creditors, predators, and other lawsuits; and
  • Planning to protect your business and ensure the smooth transition of that business to the next generation or to existing employees.

Also, don’t forget some of these other benefits about living trusts:

  • Assets in trust avoid guardianship upon incapacity. There are many situations where powers of attorney cannot do the same thing. Don’t forget, a financial institution or a healthcare provider can refuse to honor a power of attorney should they have reason to believe that the power of attorney is no longer valid.
  • Trusts can be easily changed should you desire to do so. Re-drafting a will is more difficult.
  • Trusts easily move with you from state to state because it is valid in every state and interpreted by the state law where it was written. Wills are designed to be valid and interpreted in the state they are drafted in. Wills are interpreted by the death state, which may not be the same state in which it was drafted.

When it comes to planning your estate, don’t get caught in the mindset that you do not need estate and legacy planning. Every family, regardless of the level of wealth, needs estate and legacy planning. Estate planning is about providing a plan for those that you care for the most. It is very rarely about avoiding taxes. A living trust can provide your family with the protection they need that your estate settlement will be handled according to your wishes and avoiding unnecessary government intrusion into their private lives during an already stressful time.

For More Information

If you are interested in speaking with an attorney to determine the best estate planning strategy with a revocable living trust for your family, then please contact our office today to schedule an appointment with one of our estate planning attorneys. We look forward to hearing from you soon!

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