There are really just two reasons to have a revocable trust instead of a traditional will. First, a fully-funded revocable trust eliminates the need for a probate of one’s assets upon death. Second, a fully-funded revocable trust eliminates the need for a court-supervised conservatorship of one’s assets in the event of incapacity. (For an explanation of how a revocable trust avoids probate and conservatorships, see Basic Utah Estate Planning on this website and go to the bookmark: How does a revocable trust avoid probate? For a discussion of probate in Utah, see Basic Utah Estate Planning on this website and go to the bookmark: What is probate?)
A traditional will simply directs where one’s assets are to go at death. A traditional will is subject to probate. A revocable trust is actually funded with one’s assets during life, and then directs where the assets are to go at death. A revocable trust is thus a will substitute that also avoids probate and conservatorships.
A revocable trust is funded by transferring one’s assets to the trust. For a discussion of the funding of revocable trusts, see Basic Utah Estate Planning on this website and go to the bookmark: How do I fund my revocable trust?
There are three popular misconceptions about revocable trusts: (1) that they save (or eliminate) estate taxes; (2) that they save (or eliminate) income taxes; and (3) that they protect one’s assets from creditors. These three notions are all false.
A revocable trust does not save estate taxes. It is true that a revocable trust can contain provisions that will help reduce estate taxes (such as the creation of a Credit Shelter Trust), but those same provisions can be drafted into a traditional will. Simply having a revocable trust, even if fully funded, does not in itself save estate taxes.
A revocable trust does not save income taxes. Because a revocable trust is revocable, it is treated as one’s alter ego for income tax purposes. Indeed, the trust’s tax identification number is one’s own social security number. Income generated by trust assets is reported on one’s personal income tax return.
A revocable trust does not protect assets from creditors. Again, because a revocable trust is revocable, it is treated as one’s alter ego. Creditors can reach assets in a revocable trust just as easily as they can reach assets that are held in one’s own name. (For a discussion of the asset protection that an irrevocable trust can provide in Utah, see Advanced Estate Planning Information for Non-Lawyers on this website and go to the bookmark: Asset Protection.)
For a more detailed discussion of revocable trusts, see Basic Utah Estate Planning on this website and go to the bookmark: How does a revocable trust operate?
Rust Tippett is the author of this blog post.
Copyright 2012 UNLEPI, LLC, a Utah limited liability company. All Rights Reserved.
This blog post in no way creates an attorney-client relationship between the reader and either Robert S. (Rust) Tippett or Bennett Tueller Johnson & Deere, P.C. The reader should consult with his or her own estate planning attorney regarding his or her particular circumstances.