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Revocable Trusts

A revocable trust is a part of many individuals’ estate plans. The document is a legacy-driven tool that determines how your assets will be handled after you die. The assets in the trust can include real estate, investments, vehicles, bank accounts and other items.

A revocable trust is created, and revocable, during your lifetime. Assets placed in the trust are distributed according to the trust provisions upon your passing. During your life, however, you serve as the trustee, and are responsible for maintaining the assets as you would if they were not in the trust. You can even alter or completely get rid of your revocable trust if needed. Along with creating the revocable trust, you will want to execute a “pour-over” Will, so that assets that are not allocated or funded will be transferred to your revocable trust after death.

Another important aspect of the revocable trust pertains to taxation. The assets in your revocable trust are still considered yours, and you pay the taxes on those assets accordingly. The trust itself has the same Social Security number as you do. So, for example, a brokerage account that earns income that is titled in the name of your revocable trust will have that income reported on your individual federal and state income tax returns.

As part of creating the revocable trust, you name a successor trustee, who will assume management of the trust if you are unwilling or unable to do so. Thus, a revocable trust can be an important planning tool at three different times in your life: 1) when you are alive and managing the trust as trustee; 2) when you choose not to manage, or are unable to manage the trust, and your successor trustee takes over; and 3) after your death.

Two key benefits of a revocable trust in your estate plan are that a revocable trust avoids probate, and that it affords added privacy. While probate in Pennsylvania is relatively efficient and inexpensive, that is not true in all states. Also, if you own property in multiple states, your executor may have to go through the probate process in each state. With a revocable trust, the assets in the trust avoid probate, which may lead to a more streamlined estate administration process.

The added privacy is also an advantage. Your Will becomes part of the public record after you die. Anyone can see your estate plan via your Will – who inherits what, which charities you bless, and other information that may be sensitive. Estates that are administered through a revocable trust are distributed in private. There is no public record to see where your assets went. This may be important to your assets as well as to the beneficiaries.