Continuity of Management During Disability or Death
By properly funding the Revocable Trust, it can continue to manage trust assets regardless of the Grantor’s mental or physical incapacity or upon the Grantor’s death. Although a Power of Attorney for Property might also be effective in managing assets in the event of a disability, financial institutions often find a power of attorney less authoritative than a Revocable Trust. Furthermore, a Power of Attorney for Property becomes ineffective upon the principal’s death, thereby requiring the initiation of probate proceedings, to obtain letters of office authorizing the management of the assets. A properly funded Revocable Trust avoids the necessity of a court declaration of incompetence and the management of assets by a court-appointed guardian or conservator. That process can involve large legal and bond fees, severe restrictions on investment, and continued court supervision over the management and distribution of assets.If the Grantor becomes competent again to act, he or she then can take up active management of the trust. Upon the Grantor’s death, there are named successor trustees to continue management of the trust assets without the need of a court order.
The terms of a Revocable Trust can be modified as one’s goals change. It can be designed as a unique vehicle in that it is a reflection of one’s desires and circumstances. As life continues to evolve, the trust document may also evolve to reflect these changes. The flexibility of a Revocable Trust allows, for example, choosing whether to terminate the trust and distribute assets immediately following death or have it continue and control the distribution of assets for named beneficiaries.
Avoidance of Probate
The probate process can be burdensome both financially and emotionally to family and friends following death. One of the primary reasons often cited for creating a Revocable Trust is to avoid the probate process. The critical requirement is to make sure that the trust is properly funded during one’s lifetime.In addition, if one owns real estate that is physically located in other states, then you can avoid having to incur ancillary probate administration in each such state by conveying title to the real estate to the Revocable Trust.Finally, the probate process in Illinois takes no less than 6 months and typically 1 year to 18 months to complete. During the first 6 months, distributions are generally not made unless approved by court order. Assets in a Revocable Trust, on the other hand, can be available immediately without waiting for the issuance of letters of administration from a probate court, authorizing an executor to act.
Lost or Destroyed Originals
Unlike a Will, which typically has only one signed original, it is acceptable to sign multiple original copies of a Revocable Trust. Therefore if one is lost or destroyed, then you can produce another original which will have the same authority. If a signed Will is lost or otherwise destroyed, there is a rebuttable presumption that it was purposefully revoked.
Unlike a Will, assets placed in a Revocable Trust are not automatically a matter of public record. This avoids having public exposure to the disposition of your assets, its value and the disclosure of your beneficiary(s). If your Revocable Trust is ever contested, then the privacy of your trust document may be lost since court records are generally available to the public.
Segregation of Assets
By creating a Revocable Trust, you can ensure that property that you wish to remain segregated is not commingled with other property. In the event of a divorce, for example, you can provide adequate records showing that certain property placed in the trust is inherited property and therefore not subject to a divorce proceeding.If a spouse dies during a pending divorce, the surviving spouse may seek to inherit property from the decedent's estate. A spouse can renounce the Will for a statutory spousal share of the decedent's estate (even if the spouse is not named in the Will).In accordance with Illinois law, a spouse has no such rights under a trust. Therefore, it may be advantageous to transfer property to a trust and limit property transferred through the decedent's probate estate.
At the election of the Trustee of a Revocable Trust and the executor of the estate, a combined income tax return can be filed providing additional benefits for the trust such as:
- Increased charitable deductions
- Increased passive-loss deductions for active rental real estate activities
- A trust can choose a fiscal year-end, thereby allowing income-deferral techniques
- Estimated tax payments are not required for the first two years after the date of death