One of the most common questions from clients when discussing the structure of an estate plan is, “What is a revocable trust - and do I need one?”  The first part of this question is easy to address, and the second part is more nuanced, requiring a careful weighing of numerous variables.  Refer back to Part I of this two-part blog where we discussed what a revocable trust is and is not.  Here, we will discuss the factors which merit consideration of a revocable trust as part of an estate plan (Part II). 

When Should a Revocable Trust be Considered?

While a standard will alone is suitable for many, we often discuss revocable trusts with clients if any of the following factors are present. We describe these as the “super powers” of revocable trusts.

• Minimize or Eliminate Probate.  The client has individual assets titled to their name, and they want to avoid or minimize the probate process at death.  Probate is a public proceeding before the county clerk of court wherein an executor accounts for assets and pays expenses before distributing remaining assets to beneficiaries.  Minimizing or eliminating probate helps assets more quickly and efficiently transfer to intended beneficiaries and reduces fees paid to the county clerk of court, while increasing privacy for the client.
• Incapacity. The client is facing incapacity or is concerned about becoming incapacitated in the future.  A revocable trust can provide the client with certainty that if they become incapacitated, then a successor trustee whom they have named when the revocable trust was established can then take over control of the assets titled to the trust.  This can be especially useful in the toolkit for aging clients or those with a family history of Alzheimer's, dementia, or other mental health conditions.
• Tax Planning.  The client has (or could have in the future, based on what we expect from Congress with regard to tax thresholds) a taxable estate. In 2023, an individual American has a taxable estate if they die owning more than $12.92 million (the “exemption amount”), and a married couple has taxable estates if they die owning double the exemption amount.  Congress can change the exemption amount at any time.  Therefore, client assets and the taxability of those assets under federal estate tax laws are inherently moving targets.  However, if beneficiaries could potentially owe estate taxes to the Federal government if the client died now or within the next several years, then a revocable trust can sometimes provide mechanisms to defer or reduce the amount of estate tax.
• Control and Protection. The client wants to control the inheritance received by their intended beneficiaries and/or protect that inheritance from the beneficiary's possible future creditors.  For minor children or children who are still maturing, beneficiaries with special needs or substance abuse problems, and family members who need access to financial resources but only while they are alive, the control features afforded by a revocable trust can be attractive.  For example, the client can set age restrictions on when a child will have access to the trust assets or can ensure remaining trust assets are re-directed back to their children if another family member like a parent is provided for only during their lifetimes.  Additionally, creditor protection surrounds assets left to others in trust, so that trust assets are “off-limits” to beneficiaries' spouses or if they are sued.

Our attorneys routinely discuss the above concepts with clients to help them weigh the pros and cons of establishing a revocable trust as part of their estate planning.  Revocable trust “super powers” can be used to optimize many estate plans, but they are not a perfect fit or necessary for every situation.  Contact us to learn more about revocable trusts in North Carolina and South Carolina.