There can be a lot of confusing terms involved in comprehensive estate planning. Estate plans are meant to be individual and flexible, and a New York estate planning attorney can provide you with a variety of options that help you create a plan that works for you and your wishes. One option that an estate planning attorney might present is a revocable trust, sometimes referred to as a living trust or a revocable living trust. The following provides some basic information about what these trusts are and how they operate.
What is a revocable trust?
Trusts are agreements between you and a third party in which you allow the third party, often referred to as a trustee, to hold assets for your beneficiaries. There are a variety of different kinds of trusts that each have different nuances that may work best for you. However, revocable trusts are often used in estate planning. A revocable trust is a trust you can create during your lifetime that may help you manage and protect your assets if you become ill or incapacitated. The American Bar Association notes that you may name yourself as trustee while also selecting a co-trustee, should you choose to do so. As the name states, revocable trusts can usually be created to be revoked or changed as you see fit. Revocable trusts should not be confused with irrevocable trusts which have distinct characteristics, especially related to taxes.
Does a revocable trust go through probate?
One popular benefit of a revocable trust is that they are not required to go through probate. Probate is the process that occurs through New York Surrogate’s Court when a person dies. If a person had a Will, the probate process will prove whether or not that Will is valid. The probate process also conducts administration proceedings if a person dies without a Will. Generally, only assets held in an individual’s name or by individual title are subject to probate. These tend to include things like bank accounts, automobiles, and sometimes real property. Jointly owned assets are usually not subject to probate unless both owners pass at the same time or the surviving owner passes without adding another name to the asset’s title. By creating a revocable trust, assets that might have otherwise been subject to probate can avoid the probate process.
What tax consequences are associated with revocable trusts?
The person creating a revocable trust is treated as the owner of that trust for tax purposes, no matter who has been named as trustee. While some trusts are associated with gift taxes when transferring property to them, revocable trusts are not subject to gift taxes. However, revocable trusts are still subject to the estate tax because assets in a revocable trust will be included in the value of your estate upon death. Revocable trusts can include some provisions that could help you save money on taxes should your estate be subject to them, but their main financial advantage is that they help you avoid the cost of probate for assets held within them.