The primary purpose of a Revocable Trust is the avoidance of the probate process and its attendant problems in the event of death, incapacity or incompetence. The advantages of a Revocable Trust are numerous, assuming there has been proper funding of assets to the Trust, while the disadvantages are minor.
Under a Will, an estate must be settled in Probate Court. The probate process can be somewhat slower and the proceedings are a matter of public record. By contrast, with a Revocable Living Trust, an estate is settled without the necessity of court supervision since a Successor Trustee (that you have appointed) simply administers the assets according to the Trust's instructions. The process of settling the estate through the Revocable Living Trust document is usually quicker, less expensive and more private than settling through a Will.
It is more difficult to contest the validity of a trust. When an estate is being probated in Michigan, the Court notifies all persons with an interest that the Will is being probated. Someone objecting to a Will does not necessarily have to hire an attorney.
On the other hand, to contest a Trust, a disgruntled heir will, in all likelihood, hire an attorney to file a civil suit. The assets of a Revocable Living Trust are usually not frozen and the Trustee can often distribute them to the beneficiaries in accordance with the terms of the Trust even if a suit is pending.
SPECIFIC ADVANTAGES OF THE REVOCABLE LIVING TRUST
1. As noted above, there is no publicity with respect to assets in the Revocable Trust. Therefore, there is less opportunity for interested parties to contest the plan of distribution. Creditors of beneficiaries have no knowledge of distributions to them and there are no probate expenses, Probate Court fees, or attorney fees for probate.
2. Annual Accounts need not be filed with the local Probate Court and thus Trustee's fees and legal fees for this service are eliminated.
3. Partnership interests, proprietorship interests and closely-held corporate stock interests are immediately and privately available for consummation of merger or sale, or a stock redemption. There is no publicity concerning the business interests or transactions. In most businesses, this is a real advantage to the owners and prospective purchasers of the business because public information to competitors can be avoided.
4. Out-of-State Trustees, individual or corporate, may be selected and a surviving spouse has the ability to move the administration of the Trust to another state if such spouse changes his or her residence.
5. The Trustees have complete control over the choice of appraisers.
6. You can segregate particular assets within the Trust for management by the Trustee during your life.
7. The Trust takes effect as soon as you sign it, not at your death (as a Will does). The trust can cover what happens in the event of your disability or incompetence, without the involvement of the Probate Court and the associated expense, delay, publicity and/or trauma. This planning technique is especially appealing to senior citizens and provides an alternative to the use of such devices as Powers of Attorney and agency accounts.
8. The Revocable Trust need not be amended or re-executed in the event of long absences from the State of Michigan for business purposes, ex. employees of large corporations who are stationed in a foreign country for a period of years.
9. Property located outside the state of residence can be administered under the same trust, instead of having two Probate Courts involved (with a Will).
10. Lifelong loyalties to banks, legal counsel, CPA's, insurance advisors and the like can be maintained.
11. Funding the trust involves transferring most or all of your assets, which also provides the opportunity for an overall estate analysis.
12. Court supervision is still available to the beneficiaries or the Trustee, if desired, but it is not mandatory.
13. Children from prior marriages can be secured in their inheritances in the event of second or third marriages.
14. The Trust can be a vehicle for current or future use of the unified credit shelter amount of $1.5 million in 2004. The estate tax is repealed completely in 2010 and re-appears in 2011 at a limit of $1 million (unless Congress revises the tax laws again!).
Great care must be taken in preparing the necessary legal documents to transfer all of the assets of a particular estate to a Revocable Trust. To the extent that assets are not transferred to the Trust and remain in the individual name of the creator of the Trust, on death these assets will still be subjected to the jurisdiction of the Probate Court.
If you have questions about any of these issues, please feel free to contact us for additional information.