Guest Blog By: Shelly Donaldson, VP of Business Development, Cumberland Trust
We are now in the thick of the holiday season. A time when kids trick-or-treat and then families come together for Thanksgiving, Hanukkah, or Christmas. When most people think of estate planning, they tend to view it as scary or morbid and appropriate for Halloween. Maybe I’m just a weird bird, but I think of it as a kindness to our loved ones. So, maybe this post is most appropriate for family-centric holidays. A well-prepared estate plan is essential for securing your financial legacy and ensuring a smooth transition of assets to your heirs. And it can also help your loved ones care for you in your final years or days. To me, those are actions of love rather than something to fear.
When you go to your estate planning attorney to talk about estate planning, they will typically talk to you about your Will, a General Durable Power of Attorney, and a Healthcare Directive. Today I want to concentrate on one other document that I see attorneys in Georgia preparing more often than in the past – The revocable trust, also known as a living trust. In this post, I will explore the many advantages of revocable trusts and why they could be a crucial part of your estate planning.
What is a Revocable Trust?
To be technical, a revocable trust is a legal arrangement that allows you to transfer ownership of your assets, including real estate, bank accounts, and investments (though not retirement accounts), into the trust’s name while retaining control over those assets during your lifetime. The “revocable” aspect of the trust means that you can make changes to it, or even dissolve it entirely if you wish.
This unique feature sets revocable trusts apart from other estate planning tools, and here’s why they are worth considering:
I hear a lot of people say they want to “avoid probate,” talking about probate as if it were a horrible terrible thing. While it is true that in some states, probate is onerous and expensive (Florida comes to mind), here in Georgia, for most people, it really is no big deal. But there still can be reasons to want to bypass it.
What is probate? Probate is the court process whereby, among other things, the executor named in a Will is given the official authority to settle the estate, including any property that was in the deceased person’s name that does not pass by a beneficiary designation (such as retirement accounts, life insurance, or some bank accounts) or by “operation of law” (such as things that are jointly titled). Waiting for the court to grant that authority (known as “letters testamentary”) can take weeks, or in some situations, months. During that time, no one can access those assets. Everything is tied up. For many families, that’s not a big deal. But for others, it can be quite a problem and cause hardships.
A revocable trust allows you to bypass probate entirely for the assets that are in the trust. This means that your assets can be smoothly and promptly transferred to your chosen beneficiaries without the delays and expenses associated with the probate process. Your loved ones can access the assets placed within the trust much more quickly, which can be especially critical for covering immediate expenses and maintaining financial stability. But note that I said this is true “for the assets that are in the trust.” I’ll include more about what to put in the trust and when in the section below about incapacity planning, but suffice it to say that assets that never make it into the revocable trust, will still have to go through the probate process.
When an estate goes through probate, your Will is filed with the probate court and it becomes a matter of public record. This means that anyone can access information about your assets, debts, and who is inheriting what. (Note that in Georgia, most Wills waive the need to file an estate inventory with the court. So, the actual contents of an estate may still remain private even going through probate.)
A revocable trust, however, provides a high level of privacy. A revocable trust is never filed with the court. It keeps your financial matters confidential and hidden from the public eye, safeguarding your family’s privacy. By maintaining discretion about your financial affairs, you can minimize the risk of identity theft, unwanted attention, and potential family conflicts.
A revocable trust not only says what happens to your assets after you pass away; it also addresses the possibility of becoming incapacitated due to illness, disability, or other circumstances. To me, and most of my clients over the years, this is the main reason people use revocable trusts and why I think I am seeing an uptick in the number of revocable trusts out there. I’m going to spend the most time talking about this reason for using revocable trusts.
It is typical in revocable trusts for you to be your own trustee from the outset. For incapacity or post-mortem planning, you need to designate a successor trustee who will step in and manage the trust assets on your behalf, ensuring your financial affairs are handled according to your wishes.
Naming the Right Successor Trustee
The next question I usually get is who is the right person to name as your successor trustee. For some families, there is an obvious “heir apparent.” They have someone who they trust and who they are close with who can (and will) step in and manage their affairs. Along with the rise of the use of revocable trusts, I’m also seeing the rise of people who do not have that perfect person to name. Sometimes that’s due to a small family, geographic distance, complicated assets, or not wanting to burden the people in their life. For whatever reason, they need to look outside their normal network. For that, there are trust companies who can step in and do an excellent job of managing your affairs, including hiring the right resources to assure you are well taken care of. (Note of disclosure: I work for a trust company that has a whole department dedicated to just these services.)
I really can not overly emphasize the need to choose the right trustee. This person not only needs to be highly trustworthy (I’m sure you can imagine the fraud that can easily occur), but they must also have the time and the skillsets to carry on your financial life and assure that you are well taken care of. This is not the person who will be making medical decisions for you, but they will be coordinating your care. Sadly, I have seen instances where a person becomes incapacitated and their successor trustee falls down on the job. Thankfully there were professionals in the incapacitated person’s life who were able to scramble and make things right. But it definitely wasn’t anything anyone thought would happen.
A General Durable Power of Attorney Is Not a Substitute
Above, I mentioned that a “general durable power of attorney” (“GDPOA”) is also in the package of documents that your estate planning attorney will likely prepare. While it is true that a GDPOA will allow your agent to step in and handle things when you are unable, financial institutions REALLY don’t like them. For this reason, think of a GDPOA as a short-term solution when someone else needs to access your accounts. But a GDPOA is quite cumbersome to use on an ongoing basis. If you are incapacitated, the last thing your loved ones need is an onerous process to manage your affairs. The much better solution is for your successor trustee to step in over your revocable trust.
Transferring Assets into the Revocable Trust – What and When
As I mentioned above, the only assets that can’t be transferred into a revocable trust during your lifetime are retirement accounts. But the decision on which of your other assets should go into your revocable trust or when to make those transfers is really more art than science. Those are things you will need to talk to your attorney about to make sure that is coordinated with your overall plan.
But I can say, at a minimum, before you become incapacitated (And let’s face it, we all drive on busy roads. It could happen at any time), you need to have enough assets in your revocable trust to allow your successor trustee to step in and cover your care and keep paying your other bills. In most circumstances, it’s a good idea to move your home and larger accounts into your revocable trust, while keeping your daily checking account out of the trust just for easy access. (I don’t know about you, but the idea of changing my checking account and all of my auto-pays is a daunting one!)
It is a nightmare scenario to become incapacitated and not have anything in your revocable trust. We recently had just that situation where our trust company was named as the successor trustee. The grantor fell and could no longer handle her own affairs at all…and there were no assets in her revocable trust. And to make matters worse, the gentleman who was named as her agent under her GDPOA didn’t know he had been named, and was in no shape to help move her assets into the trust for her. Our hands were tied. Thankfully, her nice neighbors stepped in and took care of her 6 cats until we could set up to have a pet sitter come in (at our expense) and the mess with her unfunded trust could be straightened out. That took months. All of that scramble could have been avoided by funding the trust ahead of time.
So, please, don’t just prepare a revocable trust, put it in a drawer, and think you are all set. There is another step to take. Your team at MONTAG can help with retitling your assets. It really won’t be as hard as you fear.
In closing, no matter your current age, you are not too young to consider a revocable trust as part of your estate plan. Your attorney and financial advisor can help you consider if that option is appropriate for you. It’s nothing to be scared of.
Have a wonderful holiday season, everyone.
Shelly Donaldson, JD
VP, Business Development
Guest blogs like this one are written by authors unaffiliated with MONTAG and reflect the perspectives and opinions of the authors. Ms. Donaldson was not compensated for this article. The information provided is for illustration purposes only. It is not, and should not be regarded as “investment advice” or as a “recommendation” regarding a course of action to be taken. These analyses have been produced using data provided by third parties and/or public sources. While the information is believed to be reliable, its accuracy cannot be guaranteed.