Revocable Living Trusts and Avoiding Probate

By Angela Siegel
Founder
      Clients are often advised by their financial planners and bankers to put beneficiaries on their accounts, in order to avoid probate.  Having a beneficiary or transfer-on-death designation makes it easier and quicker for beneficiaries to access the assets when one passes away, but having a revocable living trust is a better alternative with respect to non-retirement assets. 

      Revocable living trusts act as substitutes for one’s last will and testament. The primary purpose of these trusts is to avoid a probate or administration proceeding upon death.  They are flexible instruments which can be amended at any time.  The maker of the trust has complete control over the assets owned by the trust while he or she is alive, but upon death the trust becomes irrevocable and can not be changed.  Upon death, the assets owned by the trust are distributed by the trustee to the beneficiaries named in the trust document, without any need to go through the courts. 

      When one lists beneficiaries on ones investment and bank accounts, the beneficiaries only need to present a death certificate, and the assets become theirs without any court process required.   However, some financial institutions will not permit the designation to be “per stirpes”, which means if the beneficiary dies before you, the asset will not pass to that beneficiary’s children or grandchildren. Even if “per stirpes” can be delineated, problems are created if the asset passes to someone young. If beneficiaries are listed on all one’s assets, then the payment of funeral and other expenses becomes problematic.  Recently, the New York legislature passed a bill which permits one to list a beneficiary on their real estate.  Unfortunately, this will create both similar and additional problems.  For example, if all of one’s assets, including one’s home, pass to individuals outright, then the payment of the expenses of maintaining the property until it is sold becomes an issue.  Imagine four children being the beneficiary of one’s home, where some of the children want to sell while the others do not, where some are willing to pay for the cost of the upkeep but the others are not.  Additionally, as written, the law states that if one of the beneficiaries listed on the deed passes away, then the property passes to the remaining ones, not to the children of the deceased.

      A revocable living trust avoids the aforementioned problems, since you can control where the assets go after death, and stipulate that monies are to be held in trust for minors or the disabled.  The trust can also provide a pool of money to pay expenses.  While revocable trusts do not protect assets from estate taxes or long-term care costs, they offer an excellent alternative in estate planning for those with modest estates.*         *         *         *         *         *         *  

IRS Circular 230 disclosure: We inform you that any tax advice contained in this communication is not intended or written to be used, and may not be used by your or anyone else for the purpose of avoiding penalties imposed under the Internal Revenue Code.

About the Author
Angela Siegel focuses her practice on Business & Commercial Law, Estate Planning, Probate & Estate Administration, Real Estate Law, and Wills. Committed to providing personalized and thorough legal services, Angela is dedicated to ensuring that each client receives the highest level of attention and expertise tailored to their unique needs.