Revocable Trust

Revocable Trusts: Easiest Way to Not Pay Twice!

When you’re looking to reduce your probate tax and preserve as much of your estate as possible for your beneficiaries, a revocable trust can help you achieve both goals. Unlike their irrevocable counterpart, revocable trusts can be amended or revoked at any time and without anyone’s permission. You retain control of all trust assets for as long as you are competent and, after you pass, they can be distributed to beneficiaries according to the terms of the trust document.

Benefits of a revocable trust include: 

  • Avoid probate. A revocable trust permits assets to pass to heirs without going through probate, which can be costly and time-consuming. In most cases, a successor trustee takes over without court oversight.
  • Avoid ancillary probate. In the case of out-of-state property, shifting it into a revocable trust and registering the deed to the trust can avoid certain probate issues.
  • Protection in the event of incapacitation. If a grantor becomes incapacitated, a successor trustee can take over, and that trustee has a fiduciary responsibility to manage trust assets.

Another advantage that is often overlooked is the ability to avoid double taxation. More on that below.

Avoid Double Taxation

From an income tax perspective, revocable trusts are the simplest trust arrangement. Trust income is taxable during the lifetime of the creator, who retains full control over the trust’s terms and its assets. Taxpayer identification numbers of trusts will typically be the same as the creator’s Social Security numbers during their lifetime. The trust itself will not file a tax return, and all income, deductions, and credits will be reported on the creator’s personal income tax return. In other words, a revocable trust is technically invisible to the IRS and Kentucky state taxing authorities. 

Pay Close Attention to Trust Funding

Although revocable trusts can help you avoid double taxation, extra costs can arise if you don’t transfer all assets that may be subject to probate after you pass. If this happens, all property outside the trust becomes subject to probate. Your estate ends up in probate court and you technically pay twice: first, to set up the revocable living trust to avoid probate; and second, to have non-trust assets probated after your death. Being aware of this potential outcome can help you plan accordingly.

Questions About Revocable Trusts? Speak to a Kentucky Estate Planning Lawyer

While this guide is an excellent starting point for understanding revocable trusts, it doesn’t cover all of the details of setting one up, transferring assets, and managing it. An experienced estate planning attorney can help you understand the advantages (and disadvantages) of revocable trusts as estate planning vehicles, so you can make an informed decision. To schedule a no-obligation consultation, contact Kentucky Estate Planning Law Center today.

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