YOUR FINANCIAL FUTURE / The Importance of a Revocable Living Trust

By Roxanne E. Fleszar, CFP, ChFC

In my past article “Estate Planning…Do it Yourself or the State Will do it for You”, we discussed the importance of having a will. Now we will go further and discuss why you need another important document, a revocable trust with an incapacity clause.

A revocable living trust can take care of you when you are alive and upon your death. If prepared correctly, it is a robust part of your estate plan. It is a living document that works for you today, unlike a will which works in your behalf after your death. It is revocable, which allows you to change it throughout your life.

Why bother with this trust? Let’s assume my father passes and leaves his home to me in his will. His assets will have to go through probate whereby he substantiates his intent to leave me his home. A court order is necessary to transfer the deed to me. An attorney will handle the case through probate, charging a percent of the estate or a fee determined by the attorney. In Florida, estates of less than $100,000 are 1.5% to 3%; a $100,000 to $1 million estate is at $3,000 plus 3% of the value; and an estate over $1 million is $30,000 plus 2.5% of the estate. Wow!

If my father had set up a revocable trust instead, the home would become an asset of the trust. He could have named himself the trustee of the trust, thus making all the decisions about the house: the right to refinance the mortgage, renovate the house or even sell it. He still pays the property taxes and other related expenses of ownership; while the house is held in benefit of him, he will be the primary beneficiary and I will become the remainder beneficiary.

Importantly, when my dad passes, there is no need for the house to go through probate saving time and significant money. As the successor trustee I sign an affidavit of the death of the trustee and sign a deed that changes ownership to me through a lawyer or title company. The cost is very minimal and the time to execute the change is just weeks instead of months or even years!

You should fund the trust with your bank and investment accounts, real estate holdings and outstanding loans that have yet to be paid. You must change or have an attorney change all of the accounts to the name of the trust, a relatively easy process. (Note, IRA’s and other pension account assets do not go in a trust as they are disbursed according the named beneficiaries).

To be complete, a trust should have an incapacity clause which will allow a person you select to be named as a successor trustee to handle your personal and even business interests when you cannot. A secondary successor should also be named if the first cannot fulfill their duties.

Estate planning is difficult for most of us as we envisage our mortality but it will make certain that our affairs are handled in a timely and cost effective manner. What a gift to those you leave behind.

Roxanne E. Fleszar, CFP, ChFC is President of Financial Resources Management Corp, a registered investment advisory firm with offices in Key West, Boston and Naples.

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