Pros and Cons of MA Revocable Living Trusts
Revocable living trusts are central to many modern estate plans.
Trusts have pros and cons
Since about 1960 or so, MA and national estate planning has changed. More and more people are using a revocable living trust.
As an alternative to using a will.
Near Boston, Massachusetts, the revocable, amendable living trust has grown more popular. Labeled a revocable or living trust, it allows you to transfer property more easily than a will.
One reason for this easier approach is that you don't need to involve the probate court to handle assets after a death.
Instead, when you die, and your living trust owns many of your assets. And then the successor trustee follows the instructions you left in your MA living trust. The instructions can be as detailed as you want to make them.
Your after death directions may be to distribute all the assets to others so that the person owns that asset in their sole name.
Or, your trust may tell the trustee to continue to own the assets and USE them for a loved one.
Another approach is to distribute all the assets except for one or two particular assets. And direct the trustee to cotinue to own those assets for a longer time.
Holding an asset in trust means that the beneficiary does not become the actual owner of the asset. But they get all the benefits of the assets. Say, they get all the income generated by the account, held at a financial institution or bank.
This concept of owning assets in trust adds the element of TIME to asset ownership.
You can name the same person to be the trustee of your trustee and one of the beneficiaries.
Often your spouse or child is both the successor trustee and its major beneficiary.
If you're married and live in Massachusetts, you may lower your estate taxes.
To lower estate taxes you can arrange for assets to remain in trust on your death but benefit your spouse. Without them becoming te owner.
I do this frequently, as a MA estate planning attorney in Lexington.
So a MA living trust for Lexington and other Massachusetts residents can give you both tax and non-tax benefits.
The trust continues to exist after your death, and so there is no need to probate your Massachusetts will. Probate means to 'prove' the will.
Yet, let's keep this in perspective.
Probate is not the end of the world. It usually is a delay. And avoiding it shouldn't be the only reason for getting a trust.
There are other pros and cons of using a trust in your Boston area estate planning. Determining if a revocable living trust is useful and appropriate is a crucial component of modern estate planning. In general, but not always, using a revocable trust can be beneficial.
Yet sometimes your situation may not call for the benefits a trust may provide.
You should get yourself an honest and knowledgeable evaluation of your situation. And then a recommendation of whether to use a will or trust as the center of your estate planning.
Trusts can give both tax and non-tax protection, depending on your facts.
Your MA estate tax attorney can provide a trust provision either inside a MA Last Will or provide a trust in a separate document. When contained in a separate document, it is generally called a MA revocable trust or a MA living trust. These terms mean the same thing.
PRO: Estate tax savings if you're married and live in MA
any married persons, with over $1 million in total wealth in MA, could use a MA revocable living trust to enable the family to pay less MA estate tax.
Using a living trust plan for married persons can provide that on the first death, up to $1 million is put into a separate account.
It is available for the surviving spouse's use.
But when the surviving spouse later dies, the separate account does NOT get taxed. This is because they are not the owner of it at that time.
In this way, a separate account, maybe called a Family Trust, can lower estate taxes on the family.
So, with a married person's living trust, you can protect up to $2 million from MA estate taxes.
PRO: Non-tax reasons to have a trust (protecting the beneficiary)
You may want to leave money or assets to a person who can't control themselves. Maybe it's uncontrollable spending, or having divorce or drug/alcohol problems.
You may decide to leave that person's share in trust, for their benefit. But not give ownership to them.
Maybe the beneficiary receives government benefits. Maybe because they have very low assets or income.
In this case you can instruct the trustee to supplement but not replace those government benefits.
Another example: a client may have a son or daughter with a severe drug problem. If you leave assets to them, they may spend all the money within months.
The parent can direct the trustee to continue to hold the beneficiary's share after the parent's death. It would be used for the BENEFIT of the beneficiary. The trustee can pay for the beneficiary's rent and food but not allow the bulk of the funds to be lost to abuse.
Through the future efforts of the beneficiary and others, they can control the problem. And then the trustee can loosen the purse.
PRO: You can change the terms of the revocable living trust
A big difference between a Massachusetts revocable living trust and an irrevocable trust is that you can change one and not the other.
You can change a MA irrevocable trust but only with much more effort.
PRO: You can protect assets in a trust
People have long used trust provisions to take 'off the table' some assets from a beneficiary's creditors. This protection is generally available for persons other than the person creating the trust.
And the law has exceptions to the protection of such a trust, based on public policy.
Still, it can be useful when used. Asset protection (for someone other than the person creating the trust) may be a reason to sign a MA revocable living trust.
CON: A revocable living trust does not protect its' creator from creditors
The law makes it challenging to get asset protection for a trust you set up to benefit yourself.
The law labels this a 'self-settled trust' and will not allow yourself to keep creditors out of trust assets if you can access those assets yourself.
Massachusetts is one of several states that do not allow asset protection for any trust in which the creator remains a beneficiary.
Some states, like Delaware, does allow for protection when the creator of a trust remains one of its beneficiaries.
PRO: You can lower income taxes by creating a trust
For several years I was a national lecturer on the subject of the income taxation of trusts and estates. I can tell you it is complex.
When a trust distributes income to a beneficiary, the beneficiary must pay income tax on it. And the trust does not. On its income tax return, the trust takes a deduction for the distribution, so it does not pay income tax on it.
Income tax savings can occur if the beneficiary pays income tax at a lower rate than the trust creator. You can lower the overall income tax of a family by having trust income taxable to a lower bracket family member.