Do You Need a Revocable Trust?

Not everyone knows what a revocable trust is or whether they need one.  This article discusses the general characteristics of a revocable trust, some of the benefits a revocable trust offers, and other considerations that are relevant to this estate planning vehicle.

What is a Revocable Trust?

A trust is a relationship between three people:

Settlor.  Also called a grantor, a settlor is the person who creates the trust.  The settlor generally also contributes most or all of the property to the trust.  A revocable trust can be amended or revoked by the settlor during his or her lifetime.

Trustee. The trustee is the person who manages the trust assets as directed by the settlor.  The trustee holds legal title to the assets of the trust but does so only for the benefit of the beneficiary. 

Beneficiary. The beneficiary is the person who benefits from the trust.

All of these positions may be held by more than one person, and a person may hold more than one of these positions.  A single person may not be the sole grantor, trustee, and beneficiary, but this is not a problem because trusts almost always have remainder beneficiaries who get to enjoy the trust property when the initial beneficiary dies. Thus, in a typical married couple scenario, the couple will be grantors of their revocable trust, serve as its initial co-trustees, and are the trusts primary beneficiaries through both of their lifetimes, after which their children will become the primary beneficiaries.

Why You Need a Revocable Trust

Even with a modest estate, there are significant benefits to including a revocable trust in your estate plan. These benefits include:

Probate Avoidance. Probate is the legal process in which, upon your death, your assets are collected, your debts are paid, and any remaining property is distributed to your heirs.  Assets in a trust are not subject to probate because they pass according to the terms of your trust, so to the extent it is funded before you die, a trust will help your family avoid probate.

Dealing with Incapacity. A revocable trust can be beneficial if loss of capacity is a concern.  Should you become incapacitated, a successor trustee may step in and manage your assets for you without the need for more extreme and costly measures, such as a guardianship.  A guardianship can be costly, intrusive, and involve significant court oversight.  

Privacy. A revocable trust can also offer privacy.  When a Will is probated, it is accessible to the public as part of the court record.  A revocable trust does not need to be filed in the court records, and will reduce the public exposure of your affairs. 

Ancillary Probate Avoidance. If you own property outside of Texas, another state may exercise probate jurisdiction over it and force you to go through a second, ancillary probate.  By transferring your out-of-state assets into a revocable trust, you can avoid this costly and burdensome consequence.

Protection Against Contests. Revocable living trusts are generally harder to contest than Wills, offering some protection against disgruntled persons who consider themselves to be heirs.

Other Considerations Regarding a Revocable Trust

There are several other things to consider when designing an estate plan with a revocable trust.  For example, you will need to consider which assets you want to contribute to the trust.  Most assets can be transferred to a trust without issue, but retirement accounts and Texas homestead property may be problematic.  Sometimes, it might make most sense to transfer assets to the trust upon your death via a beneficiary designation or similar instrument.  You will also need to consider who should be your trustee.  Even if you want to be the trustee initially, you need to think about who should succeed you if you are unable to manage it yourself.  In some instances, a friend or family member may be appropriate, but in others, it may be best to name a bank or trust company to be your corporate trustee.  Finally, as with any estate plan, you should consider what will happen to your assets when you die.  Will they go to family members, other individuals, or perhaps to charities?  Will they go to those remainder beneficiaries outright or in trust?  All of these are things you will need to discuss with a competent attorney. 

Attorney Amanda Brenner’s primary practice areas are estate planning, business formations, and nonprofit organizations. Ms. Brenner graduated from University of Pittsburgh School of Law in 2015.

Legal Documents for Your College Checklist

While shopping for extra-long twin sheets and plush mattress pads for your soon-to-be college freshman, consider adding these items to your checklist:

  1. Financial Power of Attorney (POA)
  2. Medical Power of Attorney (MPOA)
  3. Health Insurance Portability & Accountability Act (HIPAA) Authorization

You are probably wondering why your barely-an-adult child needs these documents. Most high school grads have already turned or are about to turn eighteen. When a child turns eighteen, he or she becomes a legal adult. The law considers adult children capable of making their own decisions and permits them full legal privacy. Your rights as legal guardian have ended.

This new legal independence can create hurdles for you and your ability to provide assistance to your adult child. For example, imagine if your child needs medical attention but the doctor refuses to speak to you about your child’s condition because of HIPAA concerns. With a HIPAA authorization, the doctor is allowed to inform you of your child’s condition. Furthermore, what if there are immediate medical decisions that need to be made, but your child is unconscious? If you are the appointed agent under a Medical Power of Attorney, you are able to make those critical and important medical decisions. These documents can be a part of the ultimate care package for your newly-minted young adult. 

Financial Power of Attorney

The first document to add to your college student’s shopping cart is the financial power of attorney (“POA”). In a POA, the principal (your child) appoints an agent (you) to make financial and related decisions or actions on behalf of him or her in the event of need. For example, the POA gives you the authority to continue signing for your child for banking and tax purposes.

Medical Power of Attorney

An MPOA appoints an agent to make medical related decisions on behalf of or for the principal.

HIPAA Authorization

A HIPAA authorization permits doctors and healthcare providers to share health information with a list of individuals authorized by the principal. Otherwise, HIPAA law generally prohibits medical personnel from discussing your adult child’s health information with you.

Customization Options

Each document can be customized to fit your child’s needs. The powers and decisions given to an agent under the POA and MPOA can be as broad or as limited as the principal specifies. For example, the power to handle tax matters can be granted under the POA while the power to handle digital assets and the content of electronic communications can be withheld. Under the HIPAA authorization, the information authorized to be provided to individuals can be as limited as the principal prefers. Each one of these documents can be drafted to be effective only for a certain period of time, such as for the four years of your child’s college career.

There are countless scenarios in which these documents can be of great help during your child’s journey through adulthood. Without these documents, you may be denied the ability to help your child and be forced to get court approval when time is of the essence. The estate planning attorneys at Farrow-Gillespie Heath Witter LLP can help you check these important documents off your to-do list at an affordable fixed fee. Please contact us for further information.

Attorney Amanda Brenner’s primary practice areas are estate planning, business formations, and nonprofit organizations. Ms. Brenner graduated from University of Pittsburgh School of Law in 2015.