Many times, I have been contacted by a current or prospective client who informs me he or she “needs” a Revocable Trust. Upon meeting with the client, I am surprised to learn that he or she “needs” a Revocable Trust because someone on TV or at a seminar insisted “everyone needs a Revocable Trust.”

Revocable Trusts (also commonly known as “Living Trusts” or “Revocable Living Trusts”) are in fact not for everyone.

I have advised many more clients that they do not need a Revocable Trust than I have advised need one. Whether a Revocable Trust is a wise investment in an individual’s overall estate plan depends on numerous factors, and should not be based solely upon a TV program, seminar or article.

Why do people believe they need a Living Trust?

The top reason given by most clients for why they “need” a Revocable Trust, is “avoiding probate,” the “cost of probate,” and the “lack of privacy in probate.” “Probate” is nothing more than the method of transferring — at death — those assets which generally do not already have a legally defined “at death” transfer mechanism. Though a “publicly open” proceeding, I doubt very few, if any, people not involved with the estate ever take the time to actually review a probate file. Even more important to understand is that by simply paying the cost to create a Revocable Trust, one does not avoid probate. Only the “at death” transfer of those specific assets which were actually transferred and titled in the name of the Revocable Trust during life avoid probate. If no assets are ever transferred to and titled in the name of the Revocable Trust during life, probate is not avoided by virtue of that Revocable Trust.

Here’s how to really avoid probate.

I would suspect most readers have, as part of their estate, one or more bank accounts, one or more brokerage accounts, some life insurance, a 401(k) or other retirement account, an automobile and a personal residence. Before an individual pays the significant price for a Revocable Trust simply to “avoid probate,” he or she should seek counsel as to other less expensive alternatives.

• For instance, naming an individual (as opposed to one’s “estate”) beneficiary under a life insurance policy or under a 401(k) or other retirement account avoids probate.
• Setting up bank accounts with a “payable on death” designation to one or more individuals avoids probate.
• Setting up brokerage accounts with a “transfer on death” designation to one or more individuals avoids probate.

Setting up a “payable on death” or “transfer on death” account designation is different from making an individual a co-owner of that account, and putting a child or other co-owner on a bank or brokerage account is not recommended without seeking proper counsel from a knowledgeable attorney or other knowledgeable financial consultant. Due to liability issues associated with an automobile, and given the “homestead” creditor and real property tax protections under Florida law, transferring an automobile or a personal residence into a Revocable Trust should also only be done after proper counsel from a knowledgeable attorney or other knowledgeable financial consultant. Nevertheless, even if an automobile or personal residence passes to a spouse or “heirs” through probate, Florida allows a simpler, and in most instances speedy, form of probate in those situations which usually outweighs the costs and benefits of a Revocable Trust.

What about avoiding probate costs?

In most instances, the costs to create a Revocable Trust, transfer title to assets into the Revocable Trust, and administer the Revocable Trust during life and after death will far exceed any cost savings achieved by avoiding probate. Most individuals named to act as trustee under a Revocable Trust are unfamiliar with trust laws, unfamiliar with title transfer procedures, and unfamiliar with trust income tax laws or the income tax returns required to be filed by a trust. As such, the attorney, accountant, appraiser, and similar professional costs often associated with a probate proceeding will generally also be required in administering a Revocable Trust during life and after the death of the individual who created it. Realistically, the only “probate costs” which may actually be “avoided” are the court filing fees, which are far less than the costs necessary to create the Revocable Trust, fund it during life, and administer it during and after life. Further, if deemed appropriate after seeking proper legal or other professional advice, the alternative probate avoidance measures discussed above may not require use of an attorney to implement, and may be able to be handled through your insurance agent, retirement plan administrator, banker, or investment broker, at a substantial cost savings.

Far too many people create Revocable Trusts based on misconception. Use of a Revocable Trust does not avoid estate taxes. The Internal Revenue Service takes the position that if you have the ability to revoke the Trust and return title to all of the assets in your individual name, you are for all purposes the owner of those assets, and they are therefore included in your estate and subject to determination of estate tax liability. A Revocable Trust will not shelter your assets from your creditors. Under Florida law, if you can gain complete access and control of the assets of a Revocable Trust, then, to the extent the asset is otherwise subject to the claims of creditors, so may your creditors. Similarly, the assets of the Revocable Trust are also available to pay a decedent’s creditors to the extent probate assets are insufficient, and a Notice of Trust is required to be filed with the probate court for those purposes. A Revocable Trust will not shelter your assets from nursing home bills by enabling you to qualify for Medicaid. If you are able to revoke and gain access to assets of a Revocable Trust, then they are assets taken into account for Medicaid qualification purposes.

Estate planning is not a “one size fits all” undertaking. A properly drafted estate plan takes into account all circumstances of an individual, reviews the nature of all assets owned by the individual, reviews the current manner in which those assets are titled, and evaluates the overall objectives of the individual before counseling the implementation of any particular estate plan. Circumstances may in fact exist where a Revocable Trust becomes a highly recommended component of an individual’s estate plan.

In the final analysis, before spending the time and financial resources to implement a “Cadillac” estate plan, it is recommended that each individual meet with a knowledgeable estate planning attorney or other knowledgeable financial consultant to determine whether a “Chevy” estate plan is more suited to that particular individual’s needs.