The topic of trusts versus wills can be confusing, especially when a term like “revocable trust” is tossed into the mix. Many of us might shy away from asking our attorney if a revocable trust is right for us, simply because we may not understand what the term means.

But here at the Blog, one of our goals is to take some of the mystery out of retirement planning. That’s why we’re bringing you this recent article from Kiplinger in which Virginia financial planner Evan Beach takes on the task of giving us a simple four-question test that can answer the question, ”Is a revocable trust right for me?”

A Revocable Trust – the Basic Definition

While we appreciate Beach’s article in Kiplinger, we noted that he doesn’t really explain what a revocable trust actually is. For that we turned to another source.

As this article from NerdWallet explains, a revocable trust is also known as a living trust, revocable living trust or inter vivos trust. (The term inter vivos basically means “between the living.”) The NerdWallet article says, “It’s an amendable legal document that creates a separate legal entity and allows the creator — or grantor — to retitle assets in the name of that entity, or the trust. The grantor selects a successor trustee to manage those assets on behalf of the grantor and their named beneficiaries.”

That’s a bit of a legal mouthful. But the important thing, NerdWallet says, is that with a revocable trust, the one who created the trust can change the terms or dissolve the trust at any time. Because of this flexibility, the article states, assets within the trust are still considered owned by the one who placed the assets into the trust, so a revocable trust does not bring the potential tax benefits of other types of trusts.

Assets in a revocable trust are also vulnerable to creditors making claims against the trust to recover unsatisfied debts – something to consider.

A Revocable Trust is Not a One-Size-Fits-All Solution

Beach begins his Kiplinger article with implied criticism of how revocable trusts are “sold” to clients. “Imagine walking into a car dealership and asking the salesperson whether you need a car,” Beach writes. “The salesperson would answer with assurance: ‘Of course you need a car! The only question is which one on our lot you are going to buy.’”

He suggests that some estate attorneys take the same cookie-cutter approach. “No matter who you are or what your situation, the attorney is very likely to tell you that you need a revocable trust,” Beach says. “This is a one-size-fits-all answer, and you should not proceed with caution.”

Nevertheless, Beach is quick to add that there are several situations in which a revocable trust makes sense. Here are four such situations, he says, why this might be so for you.

Using a Revocable Trust to Avoid Probate

Is avoiding probate a good reason for a revocable trust? Beach says it might be.

“When prospective clients approach me, insisting they need a trust, it’s typically because of a good or bad experience they had because of a trust or lack thereof,” he states. “Maybe a parent had a trust and things passed very smoothly. Or maybe their parents didn’t have a trust, and they had to deal with the probate courts in a tough jurisdiction.”

Beach argues that probate avoidance is a legitimate reason to set up a trust. “If you plan to pass assets through your will, it will go through probate,” he writes. “Probate is a court-supervised process of distributing the decedent’s assets. It can be, depending on the jurisdiction, expensive and time-consuming.”

Beach then gives a specific example of the locale where he lives. “If you own assets in multiple states, this can be especially important,” he advises. “My office is in Virginia, but from my office window, I can see D.C. and Maryland. If I own a rental property in Maryland and die, my family will go through probate here in Virginia and ancillary probate in Maryland. A revocable trust that owns both properties solves that problem.”

If you’re in a similar situation with assets in multiple jurisdictions, you need sound legal advice. The professional team at Life Point Law stands ready to assist.

Using a Revocable Trust to Control Release of Assets

A revocable trust can be a good device to solve a challenging family situation. “Imagine a scenario where two of your kids are great with money, but the third, not so much,” Beach writes. Many families face this same dynamic, where different adult heirs are, as Beach puts it, “going to do very different things with the same inheritance.”

How does a revocable trust work for this situation? “The most common way that revocable trusts control this challenge is to release a certain percentage of assets once the beneficiary hits certain ages,” Beach explains. But this isn’t the only way a revocable trust can solve the problem.

“Along with the benefit of control comes flexibility,” says the article. “The trust I have in place would allow for annual distributions only up to the amount that my beneficiaries save each year. What kind of financial planner would I be if I didn’t incentivize saving?” In other words, the terms of the revocable trust give you plenty of planning options.

Using a Revocable Trust to Ensure Your Privacy

“Putting together an estate plan can be a very emotional process,” Beach observes. “Ideally, there won’t be too much disagreement among the parties, and you will land with a plan that executes your wishes.”  But odds are you prefer not to broadcast those wishes to the world. “Your wishes are typically something you keep private except from those who have some role or benefit in the plan,” he adds.

This is an area where a trust can be better than a will. “If you plan to pass assets through a will, just remember that most of the time, that will becomes public once the probate estate is closed,” Beach warns. “So, if you left one of your kids out, left your favorite a bit more or are just a private person, you may be better off with a trust.”

Using a Revocable Trust to Plan for Future Incapacity

Planning ahead for a time when you can’t manage your own affairs can be a major motivator to create a revocable trust.

“The scenario that no one expects or wants does, unfortunately, occur sometimes,” Beach says. “If your bank accounts are titled only in your name, this can become a nightmare for simple tasks like paying your bills.” Having a revocable trust in place can create continuity and simplicity in managing financial matters.

“In the case of the trust, you will name a successor trustee who will manage the assets in the trust according to the terms of the trust should you become incapacitated,” Beach explains. “This can happen immediately rather than going through the legal process of seeking guardianship or conservatorship.”

Does everyone need a revocable trust? Beach is quick to say no – but it might be a good tool for you. We urge you to contact us, or the estate planner you rely on, to walk you through your options.

Breaking News: Rajiv’s New Book is Here!

We have big news! The long-awaited book by Rajiv Nagaich, called Your Retirement: Dream or Disaster, has been released and is now available to the public.  As a friend of AgingOptions, we know you’ll want to get your copy and spread the word.

You’ve heard Rajiv say it repeatedly: 70 percent of retirement plans will fail. If you know someone whose retirement turned into a nightmare when they were forced into a nursing home, went broke paying for care, or became a burden to their families – and you want to make sure it doesn’t happen to you – then this book is must-read.

Through stories, examples, and personal insights, Rajiv takes us along on his journey of expanding awareness about a problem that few are willing to talk about, yet it’s one that results in millions of Americans sleepwalking their way into their worst nightmares about aging. Rajiv lays bare the shortcomings of traditional retirement planning advice, exposes the biases many professionals have about what is best for older adults, and much more.

Rajiv then offers a solution: LifePlanning, his groundbreaking approach to retirement planning. Rajiv explains the essential planning steps and, most importantly, how to develop the framework for these elements to work in concert toward your most deeply held retirement goals.

Your retirement can be the exciting and fulfilling life you’ve always wanted it to be. Start by reading and sharing Rajiv’s important new book. And remember, Age On, everyone!

(originally reported at www.kiplinger.com)