The purpose of a trust is for a person (referred to as the grantor or settlor) to give property to another person (the trustee). The trustee holds and manages the property for the beneficiaries (the people named in the trust who will receive assets). A revocable trust, or a living trust, is a type of trust that the grantor can revoke or amend during their lifetime as they see fit. Oftentimes the grantor, or their spouse, is also the trustee for a revocable trust. This type of trust can be funded with property such as checking accounts, savings accounts, brokerage accounts, stocks and bonds, a home and other real estate. Revocable trusts do not need to be initially funded, but can be at a later date or at the time of the grantor’s death. An experienced attorney can help to advise when a trust should be funded and with what property. The terms of a trust are described in a declaration of trust, or a trust agreement, which is signed by the grantor and the trustee.

There are several reasons to create a revocable trust. One positive of revocable trusts is that they avoid probate. If you are the grantor and you re-title your property in the name of a trustee of a revocable trust, property is not generally subject to probate court after you die. A trust can also provide estate management for your family when you’re gone.

Lastly, creating a trust also can reduce or defer taxes, and provide flexibility. The best way to determine if a revocable trust is right for you, consult an experienced attorney.

Heirs and beneficiaries have the ability to challenge the validity of a revocable trust on the same grounds as challenging a wills. For three months, beneficiary or heir can claim that the grantor was incompetent at the time of establishing a trtust or will and was inordinately influenced by another person to establish the trust a certain way.  However, in some cases it can be challenged for up to two years.

Executor commissions are dictated by state law and are generally comprised as a percentage of the value of the assets of the estate. This usually amounts to between one and four percent of the value of assets (plus the income on those assets). The value varies depending on the nature, amount, and title of assets at the time of the decedent’s death.The law does not set the payment amount for a trustee of revocable trusts, though they do get paid a fee. A spouse or other family member can act as an executor or trustee and the commission fee is often waived in that circumstance.

An executor can also hire an attorney to assist in the administration of a probate estate, and a trustee can hire an attorney to assist in the administration of a revocable trust after the death of the grantor. Attorney fees are often lower for a revocable trust because the terms do not require the preparation of an inventory or accounts. However, getting advice from an attorney and other services for income tax andany estate tax issues is similar for both probate and revocable trusts regardless of whether the advice is given to the executor of the estate or the trustee.

Court costs vary on a case by case basis, but they often average $200-$250 dollars, which a revocable trust does not require. If estate tax is applicable, there will be appraisal fees to determine the value of real estate. Appraisal fees may also incur for property such as jewelry, artwork, collections, and interests in private companies. However, a revocable trust may also require these same fees. If estate tax applies, an estate tax return must be filed by the estate or trust.  In Ohio, estate tax has been repealed for descendants dying after December 31, 2012. Appraisals are necessary to determine the value of the estate’s assets, and they can establish the estate property for federal income tax purposes.

Terms of a revocable trust reside in a private document. This differs from a will, where the terms as well as the beneficiaries are a matter of public record once it has been filed with the probate court. During the probate process, the inventory of assets and the written account of receipts and disbursements of the estate become public record. The administration of a revocable trust is not usually made public. 

In addition to increased privacy, a revocable trust allows for more independence and control of the trustee, relative to an executor.

The cost of probate is greater than a revocable trust. The probate process includes court costs, appraisal fees, executors’ commissions, and attorney fees. A

 A revocable trust’s transfer process is also expedited compared to probate. A trustee can begin distributing assets to beneficiaries right after the death of the grantor. On the other hand, an executor cannot distribute assets until he or she is appointed by the probate court and the will is admitted to probate. This process takes one to two weeks. While this sounds great, it is not always sensible to distribute assets immediately, as an executor can be personally liable for the claims of creditors left unpaid by the estate (this includes unpaid federal or Ohio estate taxes). Because of this, the executor won’t distribute to beneficiaries until he or she is satisfied that valid claims have been paid and estate taxes have been finally determined and paid. The trustee of a revocable trust can also be held personally liable for unpaid estate taxes, and, sometimes, unpaid creditors.

Multiple probate proceedings could be necessary if homes or other real property are owned in multiple states. In this case, a revocable trust is useful to avoid multiple probate proceedings.

Implementing a revocable trust is more time consuming than establishing a will. Unfortunately, in order to avoid probate you have to do more than sign a revocable trust agreement. To effectively avoid probate, the grantor’s assets must be re-titled or validly transferred to the trustee of the revocable trust during the grantor’s lifetime. Any assets that are acquired after the revocable trust is created need to be titled in the name of the trustee, otherwise they will be subject to probate.

Although revocable trusts have cost advantages during probate following death, a will has cost advantages during an individual’s lifetime. It is more expensive to create a revocable trust, and creating a revocable trust does not replace the need for a will. A will names the executor who will administer assets that were not transferred to the trust during the grantor’s life. A will is also necessary in naming parental gardens for the grantor’s children.

Administration of revocable trusts are not generally supervised by probate court except for in rare, extenuating circumstances. While this cuts down on costs, it also puts more pressure on choosing the right trustee to appoint, as they will not be subject to oversight by a judge. Therefore, choosing a trustee is very important and should be well thought through.

Lastly, the Internal Revenue Code has provisions that benefit estates over trusts, but revocable trusts can elect to be taxed as an estate for a limited period to eliminate this issue.