From time to time, a client will come in and announce that he or she needs a revocable trust. Typically the request stems from something the client has seen on cable, read in a book or article, or perhaps advice from a neighbor or friend.
Of course, not everyone NEEDS a revocable trust — a trust that can be changed or amended by the grantors at any time during their life — but these instruments can be very powerful estate planning tools.
For farm families, one of the most important reasons to consider a trust is to provide for business continuity in the event the owner dies, or is incapacitated. A trust can name successors to run the business and provide uninterrupted management.
Here are five situations in which a revocable trust might be helpful for any farm family.
1. Probate Avoidance: A main use of revocable trusts is to help avoid probate. This is because, upon death, the trust will dictate how assets in, or payable to, the trust will pass. In many states the probate process is time-consuming and expensive, making probate avoidance very appealing.
Remember, a trust is not the only way to avoid probate. Families should consider joint accounts, beneficiary designations and transfer-on-death accounts, too. A revocable trust is a method that can avoid probate and provide additional extra benefits.
If you own land in more than one state, avoiding probate becomes even more important for families who own real estate in more than one state since often a separate probate is needed in each state. Sometimes this means hiring another set of estate attorneys licensed in each state where property is held.
Typically, the cost of creating the revocable trust, and having a deed prepared to transfer ownership of the real estate to the trust, is less expensive than the cost of probate in each state.
2. Privacy concerns: Many clients, especially those who live in small towns, feel strongly that they want to keep their business affairs private. Many people know that when wills are filed with the court upon death, they become public record. Revocable trusts, on the other hand, remain private documents.
Many farm families find the privacy argument compelling. They do not want their friends and neighbors - nor any relatives who are not provided for in the estate - to learn about either the extent or disposition of their assets.
3. Second marriages and blended families: When married couples have children from previous marriages or relationships and both parties leave all their assets to each other, the surviving spouse has the ability to disinherit the stepchildren. A revocable trust can remedy this situation—providing lifetime benefits to the surviving spouse but, after his or death, leaving the assets to children.
4. Planning for business continuity: A revocable trust allows a co-trustee or a successor trustee to have unrestricted access to assets, in the event of incapacity of the grantor of the trust. This means you can identify someone to run the farm business if you are not able.
If a family uses a will instead, there is no provision in case the business owner is incapacitated and not dead. In this case, the family will need to have a court appoint someone to act on the owners behalf. This process can take time and will require attorney's fees.
If you die with a will as your primary estate vehicle, the probate court would need to name a Personal Representative for the business interests, which can take several weeks or even several months to accomplish. In addition, the Personal Representative will most likely need approval of the probate court to continue to run the business beyond a few months after you die.
A revocable trust allows the successor trustee to act on your behalf and for business to continue without interruption.
Even so, a durable power of attorney may still be necessary for other reasons — signing admission papers to a hospital or nursing home, dealing with insurance companies or managing retirement accounts, for instance.
Special needs: addition to planning for their own care, many clients seek a careful approach to providing for loved ones with special care needs.
For example, when a person receives government assistance due to a disability, a gift or inheritance might result in the denial of benefits. However, assets can be left in certain trusts to provide for supplemental needs, allowing the disabled person to continue to receive benefits.
The opinions of Rich Dunn are not necessarily those of Farm Futures or the Penton Farm Progress Group.