Posted by Robert L. Arone –
A revocable trust-centered estate plan offers many benefits a plain old last will and testament can’t. Trust-centered plans are better for clients and make your work easier. Understanding the benefits of trust-centered planning will position you as the trusted advisor who can spot the issues and implement solutions.
You can retain assets under management:
- Assets will be kept private so your competitors and other predators don’t know who inherited what and how to contact them.
- Avoiding probate often reduces settlement costs significantly, leaving more assets for beneficiaries and for continued management.
- Assets held in trust can be protected against dissipation from lawsuits, divorces, bad decisions, and addictions, and these assets need continued management.
You will have better client relationships:
- Clients will value your help in keeping their assets and family out of guardianship and probate courts.
- Clients will value the importance you place on keeping their final wishes private.
- Clients will appreciate your comprehensive approach to their financial planning and refer family and friends.
- You will be able to immediately work with an incapacitated or deceased client’s trusted family member or friend rather than waiting until the court decides it’s okay to get started.
- You will become the trusted advisor who sees the big picture and knows all of the pieces of the client’s financial and estate plans.
#1 – Revocable Trusts Help You Faithfully Implement Your Investment and Distribution Strategies. Custodians freeze accounts owned individually by a decedent, which can complicate your asset management process, especially if you’re tactical or are making periodic distributions. But revocable trusts with co-trustees or successor trustees can be managed seamlessly, without the need to open another account and transfer assets.
#2 – Revocable Trusts Simplify Management of Illiquid Alternative Assets. This is especially true of real estate, private equity, and private debt. Normally it is much simpler to alert an issuer/sponsor about a change in the acting trustee(s) than to retitle such assets, especially since many sponsors fail to offer Transfer on Death provisions. And, if these investments are spread across multiple states, a revocable trust also avoids opening probate in each jurisdiction.
#3 – Revocable Trusts Reduce Paralysis or Rash Changes During Times of Grief. Grieving surviving spouses often either suffer decision-making paralysis or opt for wholesale investment strategy changes. By holding assets in trusts, you lighten such clients’ decision-making load during a stressful time, and help them avoid rash changes instigated by new account and transfer paperwork. Depending on the mix of assets and the current market price, premature liquidation may produce a disappointing outcome.
#4 – By Helping Surviving Clients Avoid Rash Changes, You Add Tax Alpha. While all the assets in some revocable trusts may enjoy a step-up in basis, in many cases those notionally owned by the surviving spouse will not. If their basis is low and a surviving spouse opts for a wholesale sell-off, it may lead to unnecessarily large capital gains taxes.
#2 – Keep Assets Outside of Probate. Probate is a time-consuming and costly court-supervised public process. A will-focused estate plan lands heirs squarely in probate court. A trust-focused estate plan allows the settlement trustee to step in and carry out the trust maker’s final wishes without any court involvement or oversight.
#3 – Keep a Minor’s Inheritance Outside of Guardianship. A minor who is named as the beneficiary of a life insurance policy, IRA, or payable-on-death account will require a court-appointed guardian to manage the property until 18. On the other hand, a trust for the minor can be created in a revocable trust and named as the beneficiary of the policy or account. This allows the client to decide how long the trust will continue – age 25 or 30, or even the beneficiary’s lifetime – not just until 18.
#4 – Keep Final Wishes Private. A will filed for probate becomes a public court record, which means anyone, including predators and your competitors, can go down to the local probate court and read wills and other probate documents. On the other hand, a revocable trust is a private document that remains confidential during life and after death.
This newsletter is for informational purposes only and is not intended to be construed as written advice about a Federal tax matter. Readers should consult with their own professional advisors to evaluate or pursue tax, accounting, financial, or legal planning strategies.