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Wednesday, July 26, 2017

Benefits of a Revocable Living Trust

Long gone are the days when trusts were only for the rich and famous.  Why?  Because creating a revocable living trust is less about estate tax and more about avoiding unnecessary costs of probate and asset transfer, and creating protections for your loved ones.  A properly drafted and funded trust can also deliver an inheritance with valuable creditor and predator protections.

The following scenarios may help understand the benefits of a trust and why including one in your estate plan is worth considering:

Meet our hypothetical family, George and Jenny, happily married for 25 years with three children, Jessica, age 20, Josh, age 15, and Jonathan, age 12.  Both George and Jenny have created wills, leaving everything to each other.  After they are both gone, their wills leave it all to their children.  Sounds like a logical estate plan?  Maybe not.

 Tragically, George dies suddenly and, according to his will, all of his property transfers to Jenny.  The following year, while rushing to an appointment on a rainy morning, Jenny loses control of her car and rear ends a bus full of trial lawyers heading to the annual “I’ll See You in Court!” Convention in Fort Lauderdale.  Several attorneys are injured and predictably lawsuits follow.  Now what happens to Jenny’s inheritance from George?  It’s likely all gone to creditors.  What is left to raise her children?   Perhaps nothing.  If George and Jenny had used a trust in their estate plan, the final outcome may have been different. While Jenny’s property would still be subject to creditor claims, her inheritance from George inside a trust would be safe for her and their children.

 In another sad scenario, imagine Jenny dies first.   George later remarries Susan, a woman with four adult children from several marriages.  What happens when George passes?  His property, including what he inherited from Jenny, may go to Susan and eventually to Susan’s family.  George and Jenny’s children could be completely disinherited! With a properly drawn trust, George and Jenny can rest assured that even if the surviving spouse remarries, their money will go to their children.

Finally, think of George and Jenny happily enjoying retirement but unfortunately not too fond of their daughter’s husband, Robert.  Jenny fears that their son-in-law will never earn a decent living, and may be dependent on their daughter to support him for the rest of his life.  George worries that if they leave an inheritance to their daughter and she ultimately divorces Robert, a substantial portion of her inheritance could be lost to her “no good husband.”   If assets are left to their children in a trust, it will not be commingled with marital property. Therefore, in the event of a divorce, an heir’s inheritance will not be the subject of division and distribution.


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