Trusts have pros and cons
Since about 1960 or so, MA and national estate planning have transitioned more and more to using a revocable living trust as an estate-planning alternative to using just a will. In the Massachusetts area near Boston, and elsewhere in the state, the revocable trust has gone to the front of preferred approaches to estate planning for the Boston area and other MA residents.
Labeled either a revocable trust or living trust, one feature of using the revocable trust document approach is that you can move assets more efficiently than just having a will as an estate plan.
The higher efficiency is because no (state) probate court proceeding is needed to transfer trust assets after death.
Instead, when you pass away, and your living trust owns many of your assets, 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.
Alternatively, your trust may direct the asset continue to be owned by the trust, but the trustee will give the benefits of the asset to a trust beneficiary.
Another approach is to distribute all the assets except for one or two particular assets. And those few assets to be held in trust for the benefit of others.
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, perhaps 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.
For example, if you are married, it is frequently the case that your surviving spouse will be both the trustee of your trust after you die and ALSO the beneficiary of the same trust.
So, if you are married in Massachusetts, a revocable trust may be an improved estate plan for you.
If you're married in Massachusetts, having a revocable trust may be a common-sense estate-planning approach. One reason is the MA estate tax planning.
This MA estate tax approach includes keeping some assets in trust for a surviving spouse's benefit. You name your surviving spouse as the trustee of the family trust - sometimes called a credit shelter trust or a bypass trust - and get all the money they need from this fund.
From my perspective, as a Massachusetts estate planning attorney in Lexington, MA, this is very common in a married situation.
So, the MA living trust for Lexington residents and other residents of Massachusetts, the revocable trust can BOTH lower estate taxes and eliminate the need for probate of the last will.
To repeat: 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.
Frankly, probate is not the end of the world, and usually, it is just a delay, rather than being the sole reason for getting a Massachusetts revocable living trust.
There are other pros and cons of using a trust in your Boston area estate planning. And determining when a revocable living trust would be 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 an honest, 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
Many 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.
This use of the revocable trust for married persons is based on this: at the first death, the deceased's trust allocates up to $1 million (cash or property) into a Family Trust --- available for the surviving spouse's use. Yet, at the later death of the surviving spouse, the Family Trust does NOT become part of the surviving spouse's taxable estate.
In this way, a Family Trust funded at the first death can be part of the overall estate plan. And by doing this, each spouse can use their own $1 million exemption from MA tax. Without all the couple's assets ending up combined in the surviving spouse's taxable estate.
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)
Sometimes you want to leave money or assets to a person who can't control themselves, say, by (almost) uncontrollable spending, or having divorce or drug/alcohol problems.
You may choose, by including trust provisions in your estate planning documents, to leave the desired amount or portion of your wealth 'in trust' for the beneficiary's benefit.
If the beneficiary receives government benefits premised on their low assets or income, you can put terms in the documents that tell 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 directly to the person with a problem, as the sole or one of several persons, they can spend the money almost without control within months.
Alternatively, if the parent directed the trustee to continue to hold the beneficiary's share after the parent's death 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.
Eventually, through the beneficiary and others' efforts, the problem is controlled, then the trustee can loosen the purse.
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PRO: You can change the terms of the revocable living trust
A significant difference between a Massachusetts revocable living trust and an irrevocable trust is this: you can easily change the revocable living trust at a future date, perhaps many years after you first sign it.
In this way, a revocable living trust is different from the MA irrevocable trust that can be changed 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 highly useful when properly 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 among the majority of states that do not allow asset protection for any trust in which the creator remains a beneficiary. Some states, notably 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. Generally, the topic is considered 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.
So, by having trust beneficiaries with a lower income tax bracket than the person who contributes money to the trust, family income can be lowered.
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"A revocable living trust allows your heirs to avoid probate entirely and keeps you in complete control of your finances while you're alive. You can always make changes to what's in the trust and to how you'd ultimately like it managed or disbursed." Suze Orman
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