Why one might include a living revocable trust in estate plans

On behalf of Scaringi Law posted in Estate Planning on Monday, January 25, 2016.

A living revocable trust can be a popular choice because of its flexibility: an individual can serve as both its trustee and beneficiary. That flexibility comes at the price of no tax advantages during the individual's life. That makes sense, considering that an individual who retains control over the principal of the trust is generally deemed to be the owner, for tax purposes.

However, after the individual's passing, the trust becomes irrevocable and the advance planning is set into motion, offering the tax advantages associated with other irrevocable trusts. In addition, a living trust can avoid the costs and delays associated with probate, as well as the public nature of a probate proceeding and associated court filings. At least one commentator estimates that a living trust might save months of work and spare thousands of unnecessary legal fees.

In addition, there are other advantages to a living trust. For individuals with minor children, designating the trust as the beneficiary of payable-on-death accounts, retirement accounts or life insurance policies might spare the need for naming a separate guardian. The trustee could provide for the benefit of minor children, pursuant to the instructions of the trust document. An attorney can describe the specifics of this arrangement, as well as cautionary notes about ways to avoid accelerating income tax on IRA proceeds paid to a trust as the named beneficiary.

Interestingly, the FDIC protection extends to each named beneficiary in a living revocable trust, subject to certain exceptions. That additional protection against losses on a bank account may provide extra peace of mind, compared to the typical limit of $250,000 per account.

Source: Bankrate, "6 surprising facts about a living revocable trust," Judy Martel, Jan. 15, 2016


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