Quick Bites: Estate Planning Part 2

Remember, as a general concept, estate planning allows an individual to plan not only for what happens to his or her estate upon death, but also how his or her affairs are handled during life. There are certain documents that each person should have in order to accomplish these objectives. In Back to Basics: Estate Planning, we discussed a Last Will and Testament, Power of Attorney, and Advance Directive. In addition, it may be appropriate to incorporate a trust in your estate planning.

A Revocable Trust is a trust over which you, as Grantor, have complete control. By definition, this trust can be amended (in part or the whole) or revoked at any time for any reason. The use of a Revocable Trust offers certain advantages in estate planning. Primarily, it provides for asset management in the event that you lose capacity and cannot make decisions for yourself. A successor Trustee is appointed in the document and he or she can step right in to manage and administer the assets in the Trust without any intervention by or application to the Court. In addition, there is no need to administer the Estate through the Surrogate’s Court because the Trust is not a “probate asset” and thus administered simply by the Trustee pursuant to the Trust’s terms. This also maintains your privacy as your Will does not need to be submitted to the Court for probate. Of course, these benefits are only realized if the Revocable Trust is fully funded during your lifetime. In certain states, the probate process is not expensive or complicated, and takes very little time, so avoiding probate is not necessary. However, if there is a disabled beneficiary, or there is a contest anticipated, even in those states where the probate process is, traditionally, a simple process, it may be best to avoid it. In other states, the probate process is expensive and very time consuming, so avoiding it is often important or appreciated.

A Revocable Trust is not used for any tax planning or long-term care planning purposes. Your Social Security Number is used (not a separate Tax ID Number), and so a Revocable Trust can be considered an extension of you. The document will dictate how the assets held are to be distributed upon your death and so it’s used in conjunction with a Last Will and Testament.

On the other hand, an Irrevocable Trust is a trust over which you, as Grantor, lose all control. Except under limited circumstances, you cannot amend or revoke the Trust and so the terms will remain the same regardless of changes in circumstances. This type of Trust is often used for tax planning or long-term care planning, and so it is incorporated into your estate planning. It is not used instead of a Last Will and Testament, and serves a different purpose than a Revocable Trust. Generally, you will apply for a separate Tax ID Number for an Irrevocable Trust.

When you meet with your estate planning attorney, it is important to review any tax and long-term care planning goals in addition to your estate planning goals so that a plan is developed to meet your specific needs.

To read Estate Planning Part 1, click here.

For more information about this alert or any aspect of estate planning, please contact Lauren I. Mechaly.