While making your estate plans, complex issues and concerns can come up. For example: How do you ensure your intended heirs inherit your assets after you pass away? How do you leave an inheritance to those who may be unable to care for themselves?
A common way to deal with such issues and have greater control over your estate is establishing what’s called a revocable trust. This is basically a legal arrangement that allows you (the “grantor”) to transfer ownership of your assets to your heirs (the “beneficiaries”) using a third-party “trustee” who oversees the process. It is called “revocable” because you can generally change the terms and/or the beneficiaries during your lifetime, says Joel Huet, Senior Vice President and Personal Trust Market Manager for The Private Bank at BOK Financial. The trust becomes irrevocable upon your death. “The beauty of a revocable trust is that the grantor — the person who establishes it — can really craft it to get the results he or she wants,” Huet says.
Here are three reasons you may want to use a revocable trust in your estate planning:
1. To get your assets to the right people
A revocable trust can help you and/or your spouse direct assets to the intended people once you pass away. After getting divorced and remarried, for instance, someone might want to ensure that the children from their first marriage inherit their assets, rather than their stepchildren from their second marriage. A trust allows you to name whomever you wish as beneficiary of the assets in the trust. Without a trust, there’s greater risk that your estate would land in probate court — which can be a lengthy and expensive process that may result in your heirs not getting their share of the inheritance for months or even years. “Probate typically slows the estate dissolution process down in terms of getting assets distributed, and there’s also additional legal fees associated with probate,” Huet says.
2. To protect your beneficiaries
When set up correctly, a trust can prevent your beneficiaries’ inheritance from being subject to creditors, lawsuits and other potential risks. For example, if your beneficiary is sued or gets divorced, the assets in the trust could be sheltered.
3. To control how your legacy is distributed
You might be concerned that particular heirs don’t have the ability to manage your assets after you pass away—perhaps because they have a disability or made bad life choices in the past. A trust can be established to manage how those heirs receive their inheritance. For example, a trust can be established so that it only provides income to beneficiaries after they get a college degree or keep a job for a certain number of months. “A trust can be used to encourage beneficiaries to work hard or achieve whatever goal the grantor may want for them,” Huet says. The conditions can also be made flexible enough so the trustee has the authority to ensure that the assets end up going to the intended people even if the conditions aren’t fully met, Huet adds.
Keep in mind that trusts aren’t for everyone. You may not need a trust if you have a small estate or can effectively divide your estate by writing a will and properly titling your assets. At the same time, having a trust can help you address key concerns you may have about the dissolution of your estate.
A BOK Financial trust officer can help you evaluate your personal situation and determine whether a trust makes sense for you. Moreover, he or she can work with your estate attorney and other advisors to review your trust documents — ideally, before you sign them —to ensure its conditions can be effectively executed and will meet your long-term goals.