The Tax Prophet Newsletter Issue#3, August 2003

In This Issue:
revocable trusts What is a Revocable Trust?
Avoidance of Probate
Confidentiality and Continuity of Ownership

A Revocable Trust - The Basics

What is a Revocable Trust? A revocable trust is a written declaration and contract in which you state that you (as "settlor") are transferring your property into a trust for the benefit of yourself during your lifetime (lifetime "beneficiary") and then for the benefit of your heirs (remainder "beneficiaries"). You will be the "trustee" of your revocable trust which means that during your lifetime, you will have complete control over the trust's assets. The "successor trustee" you name will take control over your revocable trust in case of your death or incapacity. In addition, you will have the power to change, amend or revoke your revocable trust at any time during your lifetime.

Avoidance of Probate The main advantage of a this type of trust is the avoidance of probate. Probate is a state court proceeding in which your property is transferred to your heirs. All Wills must be probated; not so with a fully-funded revocable trust. Since probate only affects assets you own at the time of your death, assets placed in a revocable trust are not owned by you, therefore, there is no probate on those assets. Probate will generally cost about 3-4% of the value of the probate assets and will take from 9 months to 2 years  to complete (absent litigation or contested claims). You save probate fees by using a properly funded revocable trust. Generally, the settlor will also execute a "pour-over" Will, which places any assets not already part of the trust, into the trust.  A pour-over will is subject to probate, but having one in place ensures that all assets will be distributed in accordance with the revocable trust, whether or not the assets were part of the trust at the settlor's death.

Confidentiality and Continuity of Ownership Since probate is a court proceeding, your Will and the valuation of your assets are open to public inspection. A revocable trust, however, is confidential and the transfer of assets from the trust is kept from public view. When the settlor of the trust dies or becomes incapacitated, the successor trustee continues the administration of the  trust. With a revocable trust, there is no "gap" period between the time of death and the appointment of the executor which occurs under a Will. Also, the continuity of the trust is preserved, should the settlor becomes incapacitated by illness or accident, through the successor trustee. In this case, the trust would be administered for the benefit of the grantor.

See Also - Tax Prophet's Section on Estate Planning.

See Also - Use of Revocable and Irrevocable Trusts.

Home |  Who We Are |  What's New |  Search |  Contact Us |  Subscribe

| [Tax Class] | [Hot Topics] | [Estate Planning] | [Employee Stock Options] | [Tax & Trust Scams] | [Foreign Taxes] | [Tax Columns] | [Tax Publications] | [Tax Hound] | [Interactive Apps] | [Cyber Surfing] |
All contents copyright © 1995-2003 Robert L. Sommers, attorney-at-law. All rights reserved. This internet site provides information of a general nature for educational purposes only and is not intended to be legal or tax advice. This information has not been updated to reflect subsequent changes in the law, if any. Your particular facts and circumstances, and changes in the law, must be considered when applying U.S. tax law. You should always consult with a competent tax professional licensed in your state with respect to your particular situation. The Tax Prophet® is a registered trademark of Robert L. Sommers.