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Do I need a revocable trust?

Revocable trusts are marketed by financial planners, accountants, and estate planning attorneys as being the solution to the burdens of probate. While revocable trusts are beneficial, depending on the size and composition of the estate, they may not be right in every situation. This post will outline the benefits of a revocable trust and the costs associated with a revocable trust to help you, the reader, understand whether or not they are worth the time and expense.

Benefits

As noted above, there are many advantages of a revocable trust, a few of them are listed below.

Privacy

In South Carolina (and most, if not all, other states), a decedent's Will is part of the public record and is on file in the probate court. Individuals who wish to have a greater degree of privacy with the disposition of their estate may choose a revocable trust in order to obtain this privacy. The individual continues to have a Will, but the will simply says that the decedent's estate passes to the revocable trust, and from there the terms of the revocable trust control. See our page on revocable trusts for a more in-depth explanation of how a "pour-over" will is used in conjunction with a revocable trust.

Probate court proceedings also require the filing of an Inventory and Appraisement. This form lists all of an individual's probate assets and their value. Note, that only "probate" assets must be listed. Assets held by a revocable trust at the time of the decedent's death are considered non-probate and therefore need not be listed. This has the advantage of keeping one's true net worth confidential and has the added advantage of avoiding probate fees.

Avoidance of Probate

Probate is burdensome, complicated and time-consuming - but so is the creation, funding and management of a revocable trust. Probate in South Carolina typically takes about a year. While it is possible to handle the probate process alone, it is advisable to hire an attorney to assist in this process, particularly if real property is involved. As noted above, all assets held in a revocable trust are excluded from probate. This makes it very important to properly fund a revocable trust. Many times revocable trusts are drafted with the intention of avoiding probate, but such trusts are not properly funded requiring the assets to go through probate.

Probate assets in South Carolina are also subject to a probate fee. The amount of the fee is approximately 0.25% of the assets ($25 per $1,000 of probate assets). This fee can be avoided with a properly funded revocable trust. There are also other ways to avoid this fee such as through "transfer on death" or "pay on death" designations and other methods of making assets non-probate.

No Tax Savings

While a revocable trust can be drafted in such a way that estate taxes are avoided, a Will can be drafted in a similar manner to provide the same estate tax benefits.

Costs

A revocable trust has a higher up-front cost than a Will. A pour-over Will must still be drafted and so the revocable trust provides an extra cost. In general, a revocable trust is approximately $500 - $1,000 more than a Will that does the same thing.

The cost of preparing the revocable trust are just the beginning. As discussed above, the revocable trust still must be funded in order to take full advantage of the many benefits. This means that real estate deeds and partnership assignments must be drafted and names changed on investment accounts. Re-titling accounts is something the client can usually accomplish on their own (or with minimal help from the attorney), but the time taken up by such actions is a cost that often gets overlooked until after the revocable trust is already in place.

If a revocable trust is properly drafted and funding, the savings come on the back-end when the costs of probate can be avoided. It may still take the assistance of an attorney to distribute the revocable trust upon the decedent's death, but the goal is that the cost of settling the revocable trust (as opposed to the estate) is much less.

Common Problems

The most common problem with revocable trusts is that they are not properly funded. Of the many benefits discussed above, the only benefit of having a properly funded revocable trust is that the general public will not know the disposition of the decedent's estate. They will, however, know the value of the estate's assets when they are reported on the inventory.

A second common problem is that they do not provide the tax savings they are promoted to save. The combined gift and estate tax exemption is approaching $5.5 million. This means that very few people need complicated planning aimed at reducing the estate tax burden. While not necessarily a problem with the trust itself, having a revocable trust and not needing one is itself a problem.

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