While estate planning has a lot of different tools and techniques to meet your needs, many people enjoy the benefits of a revocable trust (also known as a living trust). A trust holds legal title to property for the benefit of another person (“beneficiary”). The person who creates the trust (“the grantor”) chooses a manager (sometimes themselves), known as the trustee, to manage the assets in order to protect them. Think of it like a box where you can hold your assets for your benefit during your lifetime, and thereafter for the benefit of another person.
When you put your assets in a Massachusetts revocable trust, you maintain ownership of those assets and can access them. This type of trust provides a lot of flexibility since you can put assets into the trust, take assets out of the trust, update the trust document, and end the trust. You completely maintain control over your revocable trust.
Here are some major benefits of a revocable trust:
If you have a will or haven’t done any estate planning at all, your estate will have to go through probate. That’s a public court process that involves inventorying the estate’s assets as well as notifying creditors and potential beneficiaries. It can take 6-12 months (more if the will is contested) and costs money. Massachusetts law gives unsecured creditors a year after the deceased’s death to make a claim against the estate, so any probated estate must remain open for one year.
Basically, probate is a time-consuming burden on your loved ones and can cost the estate a couple thousand dollars or more. A living trust avoids probate entirely, allowing your beneficiaries quicker access to your assets in a privately administered process. The cost of administering an estate that has a revocable trust is often lower that it would be with a will.
Minimize Estate Taxes
In 2023, the Massachusetts estate tax exemption is $1M. When you die, if your estate is valued at $1M or under, your estate pays no estate tax. If it’s valued at one dollar over $1M, your estate is taxed on the ENTIRE amount, not just the amount that is over. The Massachusetts estate tax is a progressive rate of 0.8-16%.
Some people don’t think their estate will reach over that $1M but remember your assets will grow over time and all of the following are part of your estate: bank accounts, stocks and bonds, real estate, business interests, insurance, trusts, annuities, life insurance proceeds, vehicles, 401(k)s, and other assets. It’s likely you’re closer to that $1M threshold than you think.
An effective estate plan can make it possible to reduce your estate tax exposure. Different types of trusts can help minimize estate taxes.
Probate is a public process, meaning wills are accessible to the public, whether it be an interested neighbor, an unhappy heir, or your children’s creditors. Revocable trusts are private. Unless the person who created the trust or the trustee decides to show the trust to someone, the only people who get to see the trust are the named beneficiaries.
More Control Over Your Assets
Unlike a will which distributes your assets when you die, a trust can be used to distribute property before your death, at your death, or afterwards. A trust can offer the following benefits:
- A great benefit of a revocable trust is that it provides options for managing assets for beneficiaries after you’ve passed away. If you have a young adult child who’s just not good at money management, you don’t want to give them all of their inheritance at once. You can set up the trust to stagger the distribution of the inheritance to them at different points in their lives, so they don’t frivolously spend their inheritance all at once.
You may choose specific life events you want your beneficiaries to receive funds for like when they attend college and grad school. Or you may decide to give them a third of their inheritance at age 21, a third at 25, and the remaining balance at age 30. Setting terms like this within your trust allows you to provide support over a longer period of time at specific moments you find most important.
- By leaving assets for a beneficiary in a trust fund, it offers some protection from that person’s creditors. Since your beneficiary has restricted access to the trust, a future lawsuit or divorce proceeding will be less likely to access the funds.
Your beneficiary can even elect to delay payment of their inheritance until after they have resolved their financial difficulties that might affect their inheritance. If you pass away when your daughter is going through a divorce, assets in a trust would be more protected than if they were distributed to her outright.
- You can use a spendthrift trust if your adult child struggles with an addiction or has an issue with gambling. You can still help support them, but you can determine some restrictions. The trustee you name makes sure your child’s needs are met but ensures that money isn’t spent on their addiction. You can even specify that you would like funds used for a rehab effort to help your child.
Planning for Disability
If you name yourself as the trustee, a successor trustee can step in and manage the trust if you ever become incapacitated even for a short period of time. In this way, the trust and successor trustee act as a safety net. This benefit of a revocable trust will give you peace of mind that your assets will be managed the way you want, even if there’s a time when you can’t do it yourself.
A revocable trust offers many benefits to you and your family, but only if you have set it up and funded it correctly. Contact us today for a free consultation on how we can get you on track with your own revocable trust.