Right now, the estate tax exemption surpasses $10 million (doubled if a client is married), and although it is due to revert back to $5 million (adjusted for inflation) in 2026, many clients believe their revocable trusts have become obsolete. The truth is, a revocable trust offers many benefits a plain old last will and testament cannot. Understanding why it is important to have a revocable trust will position our clients and understand that Cynthia Lucksinger of Lucksinger Law is the trusted advisor who can spot the issues and then fix the problems.
Four Investment Management Advantages of Revocable Trusts
#1 – Revocable Trusts Help You Faithfully Implement Your Investment and Distribution Strategies. When a client dies, custodians freeze accounts owned individually, which can complicate your asset management process, especially if you are tactical or are making periodic distributions. But a revocable trust with a co-trustee or successor trustee can be managed seamlessly, without the need to open another account and transfer assets.
#2 – Revocable Trusts Simplify Management of Illiquid Alternative Assets. This is especially true of real estate, private equity, and private debt. Normally it is much simpler to alert an issuer/sponsor about a change in the acting trustee(s) than to retitle such accounts or property, especially since many sponsors fail to offer Transfer on Death provisions. And, if these investments are spread across multiple states, a revocable trust also avoids opening probate in each jurisdiction.
#3 – Revocable Trusts Reduce Paralysis or Rash Changes During Times of
Grief. A grieving surviving spouse often suffers from either decision-making paralysis or may opt for an entire investment strategy change. By holding the client’s accounts and property in trust, we lighten the client’s decision-making load during a stressful time, and help you avoid rash changes instigated by new account and transfer paperwork. Depending on the mix of accounts and property and the current market price, premature liquidation may produce a disappointing outcome.
#4 – By Helping a Surviving Client Avoid Rash Changes, You Add Tax Alpha. While all the accounts and property in certain revocable trusts may enjoy a step-up in basis, in many cases those notionally owned by the surviving spouse will not. If the account or property’s basis is low and a surviving spouse opts for a wholesale sell-off, it may lead to unnecessarily large capital gains taxes.
Four Things a Trust Can Do That a Will Cannot
#1 – Act as a Disability Plan. A revocable trust provides protection during three phases: what happens while you (trustmaker) is alive and well, what happens if the trustmaker is alive but not so well, and what happens after the trustmaker dies. It is during the second phase that a trust really outperforms a will – if the trustmaker becomes unable to manage their affairs, the trustee can step in and take care of things immediately and without court intervention. This keeps the trust property under control of a trusted family member or friend instead of a guardianship judge.
#2 – Keep Assets Outside of Probate. Probate is a time-consuming and costly court-supervised public process. A will-focused estate plan will land the client’s family squarely in probate court. A trust-focused estate plan allows the trustee to step in and carry out your final wishes without any court involvement or oversight.
#3 – Keep a Minor’s Inheritance Outside of Guardianship. A minor who is named as the beneficiary of a life insurance policy, IRA, or payable-on-death account will require a court-appointed guardian to manage the property until the minor turns 18. On the other hand, a trust for the minor can be created in a revocable trust and named as the beneficiary of a policy or account. This allows you to decide how long the trust will continue – age 25 or 30, or even the beneficiary’s lifetime – not just until 18.
Note: Due to the additional tax considerations involving retirement accounts,
it is important that your you discuss your wishes with your tax advisor and
us, to ensure that the your current plan is not frustrated by unforeseen taxes.
#4 – Keep Final Wishes Private. A will filed for probate becomes a public court record, which means anyone, including predators and your competitors, can go down to the local probate court and read wills and other probate documents. On the other hand, a revocable trust is a private document that remains confidential during life and after death.
You Will Benefit From Accounts Held in Revocable Trusts
Having your accounts in revocable trusts make your life easier because:
- All accounts and property will be kept private, so your competitors and other predators do not know who inherited what and how to contact the recipient.
- Avoiding probate can reduce settlement costs significantly, leaving more assets under your management.
- Accounts and property held in trust can be protected from your beneficiaries’ lawsuits, divorces, bad decisions, and addictions, thus, keeping more assets under your management.
- Clients value our help in keeping your accounts and property outside o guardianship and probate and their final wishes private.
- You will also appreciate our comprehensive approach to your financial planning, and you will want to refer family and friends.
- In this scenario, we will be able to immediately work with an incapacitated or deceased client’s trusted family member or friend rather than waiting until the court decides it is okay to get started.
- Cynthia Lucksinger is your trusted advisor who sees the big picture and knows all of the pieces of your financial and estate plans.
Let’s Work Together
As always, Cynthia Lucksinger is available to answer your questions about revocable trusts and meet with clients and prospects who are considering scraping theirs or whose will just is not going to provide the protections they need. If you have a trust, and you would like Lucksinger Law to review or any estate planning questions, let us know. We are available to meet in person or virtually, whichever you prefer. Thank you and be safe!