I was speaking with a couple recently from Mt. Juliet following one of our live educational events. This couple said that they knew they needed some estate planning in place to protect their assets and their loved ones when they are gone. However, they had been doing a lot of reading and research on estate planning and revocable living trusts. This husband and wife couple believed that a revocable living trust was only necessary when you have more than $5.4 million in assets and subject to the federal estate tax.
This is a very common misconception about estate planning and revocable living trusts in general. The following are 7 important reasons to establish a revocable living trust in Tennessee:
1. It Keeps Your Family Affairs Private.
The most important reason to have a revocable living trust in place is that it keeps your debts, assets, who will be receiving your assets and in what amount, and who is in charge of settling your estate completely private. If you only have a Last Will and Testament, then your family affairs will have to go through probate, which is a public court proceeding, and all of your family affairs will become public court record.
2. Maintain Control Over Your Estate After Your Death.
Another important reason to establish a revocable living trust is that allows you to maintain control over your assets and estate after you die. A revocable trust can be customized so that it does not end at your death, but that it continues on to provide for your spouse, your children, or even you grandchildren long after you are gone.
3. Protects Your Family If You Are in a Second Marriage.
A very important reason to have a revocable living trust is if you are in a second marriage and have children from a first marriage. If you only have a Last Will and Testament, the first spouse to die usually will have his children from the first marriage receive nothing from his estate. This is because the first spouse to die in the second marriage will usually leave everything to his spouse, and then the surviving spouse will usually leave all of their assets outright to their children, leaving out the first spouse’s children from his first marriage. However, a revocable living trust can be customized so that the children from the first marriage are always provided for regardless of which spouse passes away first.
4. Asset Protection for Your Children.
Another important reason to have a revocable living trust is that it can be customized to provide asset protection for your children and heirs that you leave behind. A very common concern for many families is that they are worried that their children will blow through their inheritance, their children’s inheritance will be seized by future creditors, or their children will lose their inheritance due to a future divorce. However, a revocable living trust can be customized so as to provide asset protection for the future beneficiaries of the trust and protect and limit the possibility of the heirs blowing through their inheritance or losing their inheritance to a future creditor or spousal claim in divorce.
5. Naming the Trust as Beneficiary of Financial Accounts.
An important reason to have a revocable living trust is that you can name the trust as the beneficiary of your life insurance policies, 401(k) accounts, investment accounts, IRA accounts, and even annuities. This allows the revocable living trust to say where your assets will go, as opposed to leaving each individual asset outright to a specific child through a beneficiary designation form. In addition, naming the trust as beneficiary of these financial accounts provides that greater control and asset protection for your heirs that we discussed above.
6. Power of Attorneys Are Not Always Followed, But I Have Never Seen a Revocable Living Trust Not Followed by Financial Institutions.
An important reason to have a revocable living trust is that there are countless examples of where a bank or a financial institution will not follow a power of attorney and allow your agent to act on your behalf in the event of your incapacity. Many banks and financial institutions require the power of attorney document to have a very specific language, and if your document does not have this language, they will not let your agent act on your behalf. However, a revocable living trust allows you to name a successor trustee to act on your behalf in the event of your incapacity. I have heard many times of a bank or financial institution not allowing an agent in a power of attorney to act. However, I have never seen a situation where a bank or financial institution did not allow a successor trustee of a revocable living trust to act in place of an incapacitated person.
7. Protection of a Spouse’s Separate Property.
A very important reason to have a revocable living trust is that it can be customized and become irrevocable upon the death of the first spouse. A common scenario is where the first spouse passes away leaving everything to his spouse, then the surviving spouse remarries and leaves everything to their new spouse, and the new spouse leaves everything to their own children (effectively disinheriting the children of the first husband and wife). A revocable living trust can be created so that it becomes irrevocable as to the first spouse’s separate property and ½ interest in joint property at their death. Therefore, in the event the surviving spouse remarries, the surviving spouse will not be able to amend the trust and leave everything to the new spouse when it comes to the first spouse’s separate property and their ½ interest in joint property.
If you have questions about estate planning in Tennessee, establishing a revocable living trust or an irrevocable living trust, avoiding nursing home poverty and Medicaid planning, or any other estate planning topics, then I encourage you to attend one of our free live educational events scheduled this month. At these events, you will hear a lot of real life stories about families that paid thousands of dollars in unnecessary expenses, families that were able to avoid unnecessary expenses, and families that were able to protect their assets from unnecessary nursing home costs and expenses.
I look forward to speaking with you at one of our live upcoming events.