Avoid Revocable Trusts

Ann wants to know when to create a revocable trust, especially if you own real estate. Dave doesn't believe Ann needs one even though it does provide some liability protection.

QUESTION: Ann in Washington wants to know when to create a revocable trust, especially if you own real estate. Ann believes it would be easy to have everything in one place and beneficiaries to leave assets to. Dave doesn’t believe Ann needs one even though it does provide some liability protection.

ANSWER: You can form a revocable trust if you’ve got estate tax problems. There are some things you can do there. If your estate isn’t over $5 million, you probably don’t have any situation that the revocable trust is going to be needed for with the exception of sometimes we’re dealing with folks who are “famous” and in the limelight, and they often will put their homes in a trust a little more for a privacy thing. But there’s not any real huge tax advantage for being in a trust. It’s just a pain in the butt.

It does give you a little bit of liability protection in those situations. If you have a large, large number of assets to where you’re a target, a trust on your home makes sense. If you’re a rock star of some kind, it makes sense from a privacy standpoint. If you’re using it for some kind of an estate planning tool, it might be there. But just for convenience, it’s not convenient. It’s inconvenient. Just for the purposes of estate planning, you can just name that in a will, and it’s fine.

It does avoid probate. If you’re in an area where probate’s really, really expensive, you can do it. I wouldn’t move your home into a trust unless you know that you know you’re going to be there a long time. You’ve got to file tax returns on it every year. Any time you get ready to do something, the trustee has to be involved because you no longer own the property. The trust owns the property. It sounds like it’s some kind of a sexy estate planning tool, but honestly, I don’t recommend them. I don’t use them. I’ve got some revocable trusts and things of different types in our estate plan, but it’s because of the size of it and the complication of it—not because it’s just the convenience of it. There is definitely nothing convenient about it.