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Home >> What Revocable Trusts Can, and Cannot, Do For Your Estate Plan

What Revocable Trusts Can, and Cannot, Do For Your Estate Plan

February 19, 2016 by Robert Kulas. Leave a Comment

revocable trustAlthough your Last Will and Testament will likely serve as the foundation of your estate plan, a comprehensive estate plan should include far more than just a Will. A well thought out estate plan can help you achieve a wide range of goals and objectives by incorporating the right estate planning tools and strategies. While no two estate plans are identical, there are some commonly utilized tools and strategies, such as a trust agreement. Though once used almost exclusively by wealthy families as a way to control the family wealth for many generations to come, trusts have evolved to the point where they are now commonly found in the average person’s estate plan. Though there are numerous specialty trusts used to accomplish specific goals, all trusts are first divided into two broad categories – testamentary and inter vivos (living) trusts. Living trusts are then further divided into revocable and irrevocable trusts. Knowing what revocable trusts can, and cannot, do for your estate plan may help you decide if a revocable trust is right for your plan.

Trust Basics

All trusts are first classified as either a testamentary trust or an inter vivos (more commonly referred to as “living”) trust. A testamentary trust is a trust that does not take effect and become active until the death of the “Settlor.” The Settlor, also referred to as the “Grantor” or “Trustor” is the person who creates the trust. A living trust, on the other hand, takes effect as soon as all of the formalities of creation are satisfied.

Trusts are then classified as either revocable or irrevocable. A testamentary trust is always a revocable trust because it does not activate until the death of the Settlor, meaning the Settlor can always revoke it up to the point of death. A living trust, however, can be either revocable or irrevocable. A revocable trust can be modified, amended, or revoked by the Settlor at any time and for any reason whereas an irrevocable living trust cannot be modified, amended, or revoked for any reason by the Settlor once the trust takes effect.

What Can A Revocable Trust Do for Your Estate Plan?

A revocable trust can accomplish a number of important estate planning goals, including, but not limited to, the following common uses:

  • Parents with minor children – a minor child cannot inherit directly from a parent’s estate. With this in mind, parents with minor children often choose to create a testamentary trust that can manage and protect assets until the child reaches the age of majority. The trust can provide for the child in the meantime while guarding the remaining assets until the child is old enough to receive a lump sum disbursement.
  • Incapacity planning – a revocable living trust is a popular incapacity planning tool. You, as the Settlor, name yourself as the Trustee and name a spouse, or other trusted individual, as the successor Trustee. All major assets are then transferred into the trust. As the Trustee of the trust you maintain control of the trust assets unless you become incapacitated at which point the successor Trustee takes over automatically without the need to petition a court.
  • Probate avoidance – probate can be a lengthy, and costly process that ties up estate assets and may leave beneficiaries without sufficient assets immediately following your death. Trust assets, however, avoid probate, saving time and money as well as making assets immediately available to beneficiaries.

What Revocable Trust Cannot Do for Your Estate Plan?

One of the biggest legal differences between a revocable trust and an irrevocable trust is the status of assets transferred into the trust. Because a Settlor may still control assets transferred into a revocable trust those assets are still considered part of his/her estate. Assets transferred into an irrevocable trust, however, are no longer within the Settlor’s reach. The law, therefore, considers assets transferred into an irremovable trust to be trust assets once transferred. This leads to what a revocable trust cannot do for your estate plan:

  • Asset protection — only assets transferred into an irrevocable living trust are safe from creditors because you are no longer the legal owner of the assets once transferred into the trust.
  • Tax benefits – certain irrevocable trusts provide tax advantages that a revocable trust cannot provide.
  • Medicaid planning/Special Needs planning – a revocable trust cannot help with specialized estate planning goals such as Medicaid planning or Special Needs planning.

Contact Us

If you have additional questions about revocable trusts in the State of North Carolina please join us for an upcoming seminar or contact the experienced estate planning attorneys at Kulas & Crawford. by calling 772-398-0720 to schedule an appointment.

 

Filed Under: Trust Administration

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I have known Robert Kulas for 20 years since I was co-executor for friends who had Mr. Kulas prepare a Trust for them. When I felt I needed a trust also, I came to him. I have always been completed satisfied with his work and that of his charming, competent staff.

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Mr. Kulas and his staff have been extremely helpful & knowledgeable for the over 3 years we have been associated. They are easy to talk to and explain everything without feeling rushed. Very competent and professional.

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I have worked with Mr. Kulas & staff before. And they are very professional. I am very satisfied with Mr. Kulas and his staff and give them the highest satisfaction and 5 star rating.

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Robert Kulas and staff made making a will an easy to understand process. They were very knowledgeable and attentive to my wishes. All my documents were provided in an organized binder which will be a great asset to my family. I would definitely recommend them.

~Krissy L
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Everyone treated us extremely well.  Robert explained how a trust works and the benefits of having one.  We decided to move forward and complete the process.  He was very kind and knowledgeable.  Julie was also very helpful and very patient with our questions.  We felt very comfortable with this firm handling our affairs.  We would highly recommend this firm to our friends and family.

~Janice M
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August 25, 2020
    

"Everyone treated us extremely well.  Robert explained how a trust works and the benefits of having one.  We decided to move forward and complete the process.  He was very kind and knowledgeable.  Julie was also very helpful and very patient with our questions.  We felt very comfortable with this firm handling our affairs.  We would highly recommend this firm to our friends and family."

Janice M
Client Review
August 25, 2020
    

Robert Kulas and staff made making a will an easy to understand process. They were very knowledgeable and attentive to my wishes. All my documents were provided in an organized binder which will be a great asset to my family. I would definitely recommend them.

Krissy L.
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August 25, 2020
    

I have worked with Mr. Kulas & staff before. And they are very professional. I am very satisfied with Mr. Kulas and his staff and give them the highest satisfaction and 5 star rating.

Leo C.
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Mr. Kulas and his staff have been extremely helpful & knowledgeable for the over 3 years we have been associated. They are easy to talk to and explain everything without feeling rushed. Very competent and professional.

Mildred W.
Client Review
August 25, 2020
    

I have known Robert Kulas for 20 years since I was co-executor for friends who had Mr. Kulas prepare a Trust for them. When I felt I needed a trust also, I came to him. I have always been completed satisfied with his work and that of his charming, competent staff.

Joan C.
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August 25, 2020
    

We began our estate plan process in 2004 (12 years ago) and have been pleased with the periodic reviews we have gone through and when changes have been needed the firm has been thorough and professional in making those changes.

L.G.K.
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