When crafting an individual estate plan, you should consider whether a Revocable Trust is right for you. Below is an analysis of an artificial fact pattern and the estate plan I would recommend based on that fact pattern. For a more concise and technical explanation of the benefits of a Revocable Trust, please click on this link for a blog posted on September 23, 2024. Below is a quick summary of the benefits of a Revocable Trust.
The benefits of Revocable Trusts include the following:
- Revocable Trusts help you avoid the cost and delay of the probate process;
- Revocable Trusts allow for disability planning to address the management of your assets after a decline in health; and
- Revocable Trusts offer privacy to the deceased and his/her family.
Now that we have defined what the benefits of Revocable Trusts are, let's turn to our fact pattern.
Lisa and Dan are 66 and 64 years old and residents of Maryland. In their financial portfolio, they have a primary residence in Baltimore County (titled jointly); a beach house they recently purchased from a family member in Rehoboth Beach, Delaware (titled jointly); they each have individual retirement accounts (IRAs); and they have a brokerage account held jointly that is invested in various stocks and securities. Each of their IRAs and the brokerage account are managed by T. Rowe Price. Dan and Lisa have three adult children: Charles is 33, Catherine is 31 and James is 26.
Lisa and Dan have not updated their estate plan since Charles was 10 (23 years ago) and while both feel healthy and secure financially, their neighbors recommended that they look into setting up a trust because it would "save them money on taxes." Their previous estate plan included only the execution of reciprocal Wills, so they do not have Powers of Attorney or Advance Medical Directives. Additionally, Lisa and Dan were residents of Pennsylvania when they last executed their Wills (“PA Wills”). Their PA Wills leave everything to each other, with their estates divided equally among their children if the other has predeceased. The PA Wills name Dan's mother, who is now 85 years old and experiencing minor cognitive decline, as the Personal Representative, and the PA Wills do not name successor Personal Representatives.
Lisa and Dan have indicated that nothing has changed with regard to the overall distribution plan of their estates, meaning that they still want everything divided evenly among their children. Nevertheless, it would still benefit them to update their estate plan and to transition to a plan that utilizes Revocable Trusts. The Revocable Trusts will help them avoid the probate process in both Maryland and Delaware and, at the very least, would save them the costs of administering an ancillary probate in Delaware. They would also have the ability to update their choice of fiduciaries (Personal Representatives/“Executor” as it is often referred to) and could make any changes to the terms of distribution.
Executing a Revocable Trust would also assist with any future unforeseen health problems of Dan or Lisa, which is accomplished through the designation of successor Trustees. Each of Dan and Lisa would be the initial Trustee of their Revocable Trust and, with married couples, the other spouse is typically named as the first successor Trustee. Using Dan and Lisa as an example, if Revocable Trusts were executed and then Dan were to get into an accident and fall into a coma, Lisa would be able to step in and manage all assets within Dan’s Revocable Trust. The Revocable Trust would have a provision detailing when and in what circumstances a successor Trustee could begin to exercise their power (sometimes referred to as a “disability trigger”), which provides criteria for when a person becomes unable to handle their own affairs and should no longer be serving as Trustee. It is typical to see language related to a written, verified statement from a licensed physician that declares the Grantor/Trustee of the Trust incapacitated and no longer able to manage his/her own affairs.
It is important to note here that while healthy and able, both Dan and Lisa will have full control over their own assets and that a Revocable Trust will not restrict Dan or Lisa from using Trust assets for whatever they like.
Lastly, creating a Revocable Trust prevents disclosure of one’s estate plan. When a Will is filed in probate, it becomes a matter of public record. Usually, a Revocable Trust is not filed in probate and will remain private. Implementing a Revocable Trust will therefore reduce what is required to be public record, if not avoid the probate process in its entirety.
For Dan and Lisa, I would recommend they execute Revocable Trusts as part of their estate plan, along with pour-over Wills, Powers of Attorney and Advanced Directives.
For the foregoing reasons, one should consider creating a Revocable Trust as part of an estate plan to achieve flexibility, security and privacy.
