My answer, as you might expect, is maybe. As with many estate planning issues, there’s usually not one right answer for everybody. There are certainly those who believe that everyone should have a revocable living trust, and there are others that are more skeptical (the link is from the Idaho State Bar, so it’s not completely applicable to Missouri, and the Missouri Bar has its own publication on revocable living trusts), but in this post, we’re going to talk about what revocable living trusts can and can’t do.
What Revocable Living Trusts Can Do
- Reduces your probate estate. Any property in a revocable living trust does not go through the probate process. This can be helpful in keeping the costs of your probate estate down. In Missouri, the minimum fee for handling an estate in probate is set by statute, and ranges somewhere between 2 and 5 percent, depending on the size of the estate (the larger the amount of the estate, the lower the percentage). That is, however, the minimum; the court will allow higher fees provided that they are, in the words of the statute, “reasonable and adequate.”
- Makes your estate more private. Wills that are entered for probate become public records; however, trusts generally do not become part of the public record, because they pass property outside the probate process.
- Speeds up the passing of property. Because trust property passes outside of probate, it generally can be passed faster than property that must go through the probate process.
What Revocable Living Trusts Can’t Do
- Save on estate taxes. While the property in the trust is not counted in the probate estate, it does count for estate tax purposes. For most of us, that’s not a big issue, because the first $5,340,000 of the estate is not taxed at the federal level (for 2014), but if you’re concerned about the estate tax, a revocable living trust won’t be much help.
- Save money on your estate planning. An estate plan with a revocable living trust is likely going to cost more than one without. The reason is pretty simple: it takes work to advise about and create a suitable trust, and that work increases the cost.
- Replace a will. At a minimum, it makes sense to prepare a “pour-over will” along with a trust. A pour-over will passes any property in the decedent’s estate to the decedent’s trust if the property hadn’t already been put in the trust.
- Protect property for MO HealthNet purposes. For the those over age 65, the blind, and the permanently disabled (and there are other MO Healthnet programs), MO HealthNet is available provided that applicants meet certain income and asset limitations. The asset limitations are fairly low; for those over age 65, available assets must be less that $1,000 (less than $2,000 for married couples), and for the blind, available assets must be no greater than $2,000 ($4,000 for married couples). Property placed in a revocable living trust still counts against that limit unless it is otherwise exempt.
- Much of anything, if it’s not funded. Creating a trust alone doesn’t provide any benefits; the trust needs to be funded in order to do its job properly.
So, do you need one? I haven’t budged off of my “maybe” position earlier, but here are some issues to consider:
- What’s the size of your estate? The larger it is, the more likely a revocable living trust will help reduce the costs of probate.
- How are your assets titled? Under certain circumstances, property held jointly, for instance, may not become part of a probate estate.
- What are your goals for the trust? If it’s something I listed in “What Revocable Living Trusts Can’t Do,” it’s probably not going to work.
- Are you willing to manage the trust? Trusts do require some management, and often the settlor (the person who creates and puts assets in the trust) is the person to do it.
- If you’re not willing to manage the trust, who will? You might be able to depend on someone else to manage the trust, but you may either have to find someone you can depend on to handle it, or pay a professional trustee to do it.
- Would other less-expensive probate-avoidance techniques work better?
Creating any kind of trust for estate planning purposes should be a well-considered, deliberate decision. Of course, these questions are just a guide, and you should consider (and, perhaps, get the advice of an attorney in your jurisdiction) the matter carefully before creating a trust.