WHAT ARE THE LIMITS OF A REVOCABLE TRUST?
The revocable trust is a common estate planning instrument in Florida. In a revocable trust, the person creating the trust, known as the grantor, transfers ownership of assets to the trust. When the grantor passes away, the trustee will distribute the trust assets to the beneficiaries. Because the trust, not the grantor, owns the assets at the time of his or her death, the assets are not part of the grantor's estate and do not go through the probate process. This can be advantageous because probate can be a lengthy and expensive legal proceeding.
Another big advantage of a revocable trust is that the grantor can change the trust as their life circumstances change. For example, if the grantor needs to remove certain assets from the trust during their lifetime, they are free to do so. Given the substantial potential benefits of a revocable trust, what are some of the limits of this type of trust instrument?
Some people may believe that a revocable trust protects assets from creditors of the grantor. In a recent post, we explained how an irrevocable trust can in fact help the grantor protect certain assets from creditors. By contrast, a revocable trust does not provide this protection to the grantor. After the grantor dies, however, the revocable trust can protect trust assets from creditors of the beneficiaries, provided the grantor has included a valid "spendthrift" provision in the trust.
A second limitation of a revocable trust is that it does not in any way help the grantor to avoid taxation on the assets that they wish to pass down to their beneficiaries.
While a revocable trust is very useful for people who want to avoid probate, this instrument does have limitations. An experienced trust administration attorney can help people in Florida determine whether a revocable trust is right their estate planning needs.
Rignanese & Associates is available to work with clients on their legal needs. Please reach out to us at 863.294.1114.
On behalf of J. Kelly Kennedy, Attorney/CPA, PLLC posted in Trust Administration on Thursday, July 14, 2016.
Source: Nerdwallet.com, "Your Revocable Trust Is Not Protecting Your Assets," Rachel Podnos, Accessed on July 10, 2016