In New York and New Jersey, Revocable Trusts, also known as Living Trusts, have started to be used with greater frequency in estate planning. In a typical Revocable Trust, the creator of the trust (ie, the grantor) is also the sole beneficiary and sole trustee during his or her lifetime. This structure allows the grantor unfettered access and control over the assets that were transferred into the trust during the grantor’s lifetime.
During the coronavirus pandemic, with courts being limited to only emergency filings, stock market volatility and businesses on pause, the use of Revocable Trusts can provide even greater benefits.
Immediate Access to Assets
Probate (ie, the determination by a court as to the validity of a Will) can be a lengthy process in many states causing delays in a fiduciary gaining access to assets. In many instances, immediate access to an individual’s assets at his or her death is essential. If a Revocable Trust has been funded, such assets can be used immediately to help pay for expenses (such as funeral expenses or medical bills), while also providing immediate control over (a) brokerage accounts with fluctuating assets due to market volatility allowing beneficiaries to adjust investments, and (b) businesses that may be subject to constantly changing governmental orders.
Reduces Probate and Administrative Fees
Probate can also be a time-consuming, expensive and arduous process in many states. A Revocable Trust, if fully funded, will avoid the probate process since all assets will pass pursuant to the terms of the trust. If there are no assets in an individual’s name at his or her death, such individual completely eliminates the need to probate a Will. This can be even more important for individuals with assets in more than one state. With a Will, each state would generally require an ancillary probate proceeding to allow for the transfer of that state’s assets. By funding a Revocable Trust, the need for such ancillary probate proceedings would also be eliminated.
In addition to avoiding probate, many state courts continue to oversee the actions of fiduciaries when assets pass under a Will. Whether it is requiring periodic accountings or permission from the court anytime a fiduciary change is needed, the ongoing administrative costs with a Will can be burdensome. Revocable Trusts can avoid these costs.
Tax Advantages
While a Revocable Trust is generally not considered a tax saving vehicle, the Revocable Trust can still offer tax advantages if continuing trusts will be established for beneficiaries. In some states (such as Connecticut), trusts are taxed differently if they are created under a Revocable Trust rather than a Will. In these states, continuing trusts established under a Will remain subject to state income tax regardless of the location of the assets and the domicile of the beneficiaries. Continuing trusts established under a Revocable Trust, on the other hand, may be able to minimize such state income taxes.
Privacy
Revocable Trusts also provide a level of privacy over the disposition of assets. Probate is a public process. When a Will is offered to the court for probate, the Will becomes part of the public record, allowing anyone to access the Will and ascertain how and to whom assets will be distributed. A Revocable Trust that governs the disposition of an individual’s estate would not allow for the public to access to this information.
The COVID-19 crisis has highlighted the utility of Revocable Trusts as part of an individual’s estate plan.
