Revocable Trust – An Important Estate Planning Tool

In this post, we take a look at the advantage of using a revocable trust to avoid probate. Many clients question the need of a revocable trust. However, the use of a revocable trust avoids probate. Revocable trust also simplify passing your assets to beneficiaries and can save your estate unnecessary fees and costs.

Image of mother's hand intertwined with infant hand as we learn about the importance of revocable trust

What is probate?

Probate is a legal process where the Court (Register of Wills, an arm of the Court of Chancery in Delaware) assesses the validity of the last will and testament.    Upon presentation of a valid will, the Register of Wills appoints a personal representative (Executor/Executrix) who compiles an inventory and appraises the Decedent’s individually owned property.  Over the course of eight months, the personal representative pays the Decedent’s debts, funeral costs and taxes.  The typical administration (probate) of an Estate ranges between eight months to 1 ½ years, which delays beneficiaries receiving their inheritance.

In Delaware, probate is required if (a) the Decedent owned more than $30,000.00 in personal property or (b) the Decedent owned Delaware real estate. Additionally, the Register of Wills collects a closing cost (tax) on assets that pass through probate, ranging from 1.25% up to 2.00%[1].

Most clients do not need to worry about the federal estate tax limit.[2]  Many clients can simplify their estate plan and drastically reduce estate administration expenses through the utilization of a revocable trust.

What is a revocable trust?

A revocable trust is an estate planning instrument, which provides for the Grantor[3] during their life and then disburses assets to beneficiaries upon the Grantor’s death.  A revocable trust is very similar to a last will and testament.  The Revocable Tust provides specific details enabling the Grantor to continue to manage their assets during their life and then pass their estate without probate.    The instrument contains language that allows the Grantor to continue to manage their assets similar to their capacity as an individual.  After the Grantor’s death, the trust also provides  direction for disbursement to their beneficiaries after their death.  Similar to a will, an individual can revise or change the terms of the trust at any time.

Once an individual signs a revocable trust, our estate planning team works with each individual to properly re-title all individually owned assets (real estate, brokerage accounts, stocks, bonds, etc.) into the trust, which helps maximize the benefits of a revocable trust.[4]  Despite creating a revocable trust, a client still executes a last will and testament, which is designed to catch any assets not properly titled into the name of the trust.  Our firm refers to these wills as pour-over wills.

While the cost of a revocable trust may exceed the cost of a last will and testament, the benefits of a revocable trust include reducing out-of-pocket costs (i.e. savings associated with closing costs and estate administration attorney fees), simplifying and expediting disbursements to beneficiaries as well as privacy of your last wishes.

Advantage of Using a Revocable Trust

Here is an illustration regarding the Benefits of using a Revocable Trust in your estate plan:

Wilma Will & Tracy Trust, each have the following assets:

  1. Real Estate ($200,000.00)
  2. Checking Account: $ 4,000.00
  3. Savings Account: $ 6,000.00
  4. Certificate of Deposit: $ 20,500.00
  5. Stock from XYZ $ 47,500.00

Example 1 (Wilma Will): To illustrate why creating a trust may in fact be a cost saving solution, lets look at a hypothetical individual (Wilma Will) with three grown children. This individual owns a home (valued at $200,000), but does not place a direction to sell in her last will, meaning the property passes pursuant to her will; however, local rules do not include this as a probateable asset.

Wilma Will’s Total Probate Assets: $ 78,000.00

NCC Individual Probate Administration with a will (Currently 1.75% closing costs)

Total Assets: 78,000.00
Less Estate Expenses[5] : (15,000.00)
Less Estate Attorney Expense: (1,500.00)
Assets Subject to 1.75% Closing Costs: 61,500

New Castle County Closing Costs = 1,076.25

Wilma Will’s Cost Breakdown:

  1. Cost of Will $ 350.00
  2. Estate Attorney Expense $ 1,500.00
  3. NCC Closing Costs $ 1,076.25

Wilma Will’s Total Estate Planning/Administration Costs:  $ 2,926.25

Example 2 (Tracy Trust): In this example, we will illustrate the benefits of a utilizing a revocable trust in avoiding local probate fees.  Here, a hypothetical individual (Tracy Trust) with three grown children. Tracy Trust owns a home (valued at $200,000), and her estate is identical to Wilma Will in Example 1.

Tracy opted to create a revocable trust and re-title most of her assets into the name of the trust, with the exception of her checking account so that she could pay her monthly bills. Her trust is the beneficiary under her last will and testament.

NCC Individual Probate Administration with a will (Currently 1.75% closing costs)

Tracy Trust’s Total Probate Assets: $ 4,000.00[6]

Tracy Trust’s Cost Breakdown:

  1. Cost of Trust & Deed with Recording $ 1,750.00
  2. Estate Attorney Expense $ 250.00
  3. NCC Closing Costs $ 30.00

Tracy Trust’s Total Estate Planning/Administration Costs:  $ 2,030.00

In this simple illustration, the individual using the Revocable Trust saved almost $900.00, which passes directly to their beneficiary.  In this example, the individual did not have a huge estate; however, benefitted substantially with the creation of a revocable trust.

For more information about the benefits of a revocable trust and to see how we can incorporate a revocable trust into your estate plan, please contact our firm.

[1]  Due to local, county, and State budget issues, it is extremely foreseeable that local closing costs may continue to rise.
[2] Tax Cuts and Jobs Act established the 2018 Federal Estate and Gift Tax limit of $11,180,00.00, which is subject to increase based on inflation.
[3] Grantor – a person creating a trust.
[4] There are certain assets that our attorneys strongly advocate are not re-titled into a trust. For more information, please contact our attorneys.
[5] Estate expenses include debts, administrative fees, and funeral costs. These expenses reduce assets subject to local closing costs.
[6] Tracy Trust’s assets were re-titled into her revocable trust and identical to Wilma Will; however, because they are trust assets they are not subject to probate.  An estate under $ 30,000.00 does not need to be probated, but would require the filing of the death certificate, last will and testament and paying a small fee for a small estate affidavit.
2018-08-01T16:10:37+00:00

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