Tax Law Insights

We have previously discussed the advantages of using a revocable trust to implement your estate plan. In this post we will discuss in greater detail the advantages of ease of administration, flexibility in valuation, discretion in the management, and lower cost. These advantages can be best understood by comparing the probate process to the administration of the typical revocable trust.

First and foremost, the administration of the revocable trust is much more efficient because accounting for the activities of the trust can be managed through the cooperation of the trustee and beneficiaries and do not require court involvement. In the probate process, the probate court will require that specific information be provided about the decedent, the decedent's assets and his heirs. This information must be provided in the form and detail mandated by the probate court on a timeline set by the court. Gathering and reporting this information is expensive, time-consuming and, in some cases, frustrating. In the case of a revocable trust, the trustee and the beneficiaries can tailor the amount of information to be provided, the way the information is provided, and the timing of providing the information in a manner that is appropriate for the needs of the beneficiaries and necessary to satisfy the legal responsibilities of the trustee. This latitude in addressing the issues of accounting for the activities of the trust can result in significant savings in time, energy and money in the implementation of the estate plan of a decedent.

Second, the valuation of assets of the trust can occur in a more informal and expedited basis as compared to the probate process. If a client owns multiple assets or owns assets that are not traded on a regular basis, such as real estate, then meeting the strict valuation requirements of the probate process can be expensive and time consuming. In the case of a revocable trust, the trustee and the beneficiaries have much greater discretion in addressing the valuation of the assets owned by the trust.

In addition, as compared to the probate process, the revocable trust is much more flexible when managing assets during the administration process. In many cases, the approval of the probate court is required before actions affecting the disposition of the assets of the decedent can be taken, whether it is the sale of an asset or the distribution of assets to the heirs of the decedent. In contrast, with a revocable trust, the approval or the probate court is not required to sell assets or to transfer assets to the beneficiaries of the trust. Generally, revocable trust assets may be distributed to the beneficiaries as promptly as the trustee considers prudent, but the probate process can take eight months or more before distributions commence.

Finally, no probate fees or other court costs are incurred for trust assets. These savings alone can make the use of a revocable trust advantageous. In addition, the savings in administration, valuations, and management all discussed above suggest this is the better choice for many individuals.

Note: Having a will can significantly reduce some of the expense and complexity of the probate process but the probate court reporting requirements described above must still be met and the probate court will still be a participant in the administration of the affairs of the decedent.

So there are clear advantages to use a revocable trust to transfer assets at death to the intended beneficiaries of the client. To realize these advantages, the trust agreement must be drafted by the attorney to provide the trustee the discretion and latitude needed. The assets must also be owned by the trust and not by the decedent. Finally, one should consider whether the oversight of the probate court provided in the probate process is appropriate for a particular set of facts.

In summary, the principal advantages of the revocable trust relate to ease of administration, flexibility in valuation, discretion in the management of assets, and reduced costs. Although having a well-crafted will can address some of the issues, the revocable trust is the better solution for most clients.