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The Revocable Trust Explained

by Gary M. Levine, Esq

15 May 1999

The Revocable Trust is an estate planning tool available to persons resident in the US

Estate Planning is the result of complex and technical rules confusing to almost everyone. However, most estate planning issues are universal; minimizing or eliminating estate and gift taxes, equalizing estates, determining how and to whom assets will be transferred, and long-term care.

Since every individual can transfer up to $650,000 in 1999 without federal estate tax ramifications (increasing to $1,000,000 in 2006), if your estates are properly planned, you and your partner can pass up to $1,300,000 (increasing up to two million dollars in 2006) to your beneficiaries tax free. This is done by establishing two separate estates and creating two separate trusts.

The trust can be created either by Will or by contract. However, since a Will requires probate and most people wish to avoid a court process, you can create a living trust by contract. And since most people do not want to give up control of their assets, a revocable trust is usually the trust of choice, depending on your objectives.

Generally, the revocable living trust is a legal arrangement (an agreement) between a person with assets who creates the trust (the settlor, creator, grantor) and the person who manages the assets (the trustee) who holds those assets for the benefit of the beneficiaries. In most states, the same person can be the settlor, trustee and beneficiary. This means you make a written agreement with yourself to manage your assets for the benefit of yourself.

After the agreement is executed, your assets have to be transferred from you, individually, to you, as trustee. Retitling the assets (funding the trust) transfers legal ownership. You are doing for yourself what the courts would permit your beneficiaries to do through probate. In a sense, you are probating your own estate.

After incapacitation or death, a successor trustee named in the agreement steps in and proceeds with the administration of the trust. This process eliminates the need for conservatorship or guardianship proceedings and probate.

It's not foolish to want to reduce the time and the aggravation for your loved ones after you're gone. This alone may justify establishing a revocable living trust. But the cost savings of avoiding court proceedings may be substantial, depending on the attorney and locale. In some jurisdictions, attorneys charge as much as five percent (5%) of the gross estate. While the costs of establishing a trust are typically between $1,000 and $2,000 for an individual, these costs will vary, again depending on your attorney and where you live.

A trust, although generally useful, is not the only tool in the estate planning arsenal. Some attorneys say that the trust is the best invention since white bread; others say you don't need a trust, "I'll take care of everything after you're gone."

Before you decide on a course of action or inaction, make sure that the planner sitting across from you explains all your options. If you feel that you're being sold, cajoled, pressured, overcharged, or you aren't getting your questions answered, get another opinion.

The Author

Gary M Levine PC is an attorney practising in New York, who specialises in estate planning, elder law, partnership agreements, business formation, buying/selling, real estate transactions. See also