• Mortgages
    Get the Best Rates
    • Mortgage rates
    • Refinance rates
    • Post FED Announcement Rates
    • 30-year mortgage rates
    • 15-year mortgage rates
    • 20-year mortgage rates
    • 10-year mortgage rates
    • Mortgage lender reviews
    Use Calculators
    • Mortgage calculator
    • How much house can you afford?
    • Mortgage refinance calculator
    • Mortgage payment calculator
    • Amortization calculator
    • All mortgage calculators
    Get Advice
    • FED announcement impact on rates
    • What to know about reverse mortgages
    • Home buying guide
    • Refinance your mortgage
    • First-time homebuyer loans and programs
    • Prepaying your mortgage
    • Your guide to FHA loans
    • Everything to know about VA loans
  • Homes
    Home Buying
    • Determine your budget
    • Find your home
    • Get prequalified
    Get Advice
    • Step-By-Step Homebuying Guide
    • First-Time Homebuyer's Guide
    • How Does Rent-To-Own Work?
    • What To Look For When Buying A Home
    • Homebuyer Mistakes To Avoid
    Learn How To
    • Make An Offer On A House
    • Decide Between Renting vs. Buying
    • Ace the Final Walk-Through
    • Find The Best Real Estate Agent
    • Buying A Second Home
    Use Calculators
    • How Much House Can I Afford?
    • Rent Vs. Buy Calculator
    • Cost of Living Calculator
    • How Much Should I Put Down?
  • Banking
    Compare Accounts
    • CD rates
    • Savings accounts
    • Money market accounts
    • 1-Year CD rates
    • 3-Year CD rates
    • 5-Year CD rates
    • Checking accounts
    • Bank ratings
    Use Calculators
    • Savings calculator
    • CD calculator
    • Compound savings calculator
    • All banking calculators
    Get Advice
    • How to save money
    • Federal Reserve news
    • What is a money market account?
    • Which certificate of deposit account is best?
    • How to open a savings account
    Bank Reviews
    • Capital One Bank
    • Marcus by Goldman Sachs
    • American Express National Bank
    • CIT Bank
    • Synchrony Bank
    • Barclays Bank
    • All Bank Reviews
  • Credit Cards
    Compare by Category
    • Best Credit Cards of 2019
    • Rewards
    • Travel
    • Airline
    • Cash Back
    • No Annual Fee
    • Balance Transfer
    • 0% APR
    • Business
    • Student
    Compare by Credit Needed
    • Excellent Credit
    • Good Credit
    • Fair Credit
    • Bad Credit
    • No Credit History
    • Secured Credit Cards
    Compare by Issuer
    • American Express
    • Bank of America
    • Capital One
    • Chase
    • Citi
    • Discover
    • Wells Fargo
    Get Advice
    • Credit Card Reviews
    • Credit Card Payoff Calculator
    • Balance Transfer Calculator
    • All Credit Card Calculators
  • Loans
    Compare Lenders
    • Personal loan rates
    • Personal loan reviews
    • Auto loan rates
    • Student loan rates
    • Student loan reviews
    Loan Types
    • Personal loans
    • Auto loans
    • Debt consolidation loans
    • Home improvement loans
    • Student loans
    • Medical loans
    • Bad credit loans
    Use Calculators
    • Loan calculator
    • Auto loan calculator
    • Personal loan calculator
    • Auto refinance calculator
    • Loan payment calculator
    • Student loan calculator
    • All calculators
    Get Advice
    • Student loans guide
    • Refinancing student loans
    • Refinancing personal loans
    • Refinancing auto loans
    • How to get a personal loan
    • Personal loan origination fees
  • Investing
    Best of
    • Best Investments
    • Best online brokers for stocks
    • Best online brokers for beginners
    • Best online brokers for mutual funds
    Brokerage Reviews
    • TD Ameritrade Review
    • Merrill Edge Review
    • Ally Invest Review
    • Fidelity Review
    • Charles Schwab Review
    • Vanguard Review
    • Interactive Brokers Review
    • Robinhood Review
    • Tradestation Review
    • E*Trade Review
    • WellsTrade Review
    • All Brokerage Reviews
    Use Calculators
    • Investment Earnings Calculator
    • Annuity Calculator
    • All Investing & CD Calculators
    Get Advice
    • Compare Online Brokerages
    • What is the long-term capital gains tax?
    • Passive income: What it is and 5 ideas for 2019
    • How to buy stocks
  • Home Equity
    Compare Lenders
    • Home equity loan rates
    • Home equity line of credit rates
    • Home equity lender reviews
    Use Calculators
    • Home Equity Calculator
    • Loan vs. Line Of Credit Calculator
    • Debt consolidation calculator
    • HELOC payoff calculator
    • All home equity calculators
    Get Advice
    • What is a home equity loan?
    • HELOC vs. Home equity loan
    • Consolidate your debt using home equity
    • Home equity loans with bad credit
  • Insurance
    Insurance Types
    • Car insurance
    • Homeowner's insurance
    • Health insurance
    • Life insurance
    Best of
    • Best Car Insurance Companies
    • Best Home Insurance Companies
    • Best Cheap Car Insurance
    • Top Car Insurance Comparison
    Company Reviews
    • Geico Insurance
    • State Farm Insurance
    • Progressive Insurance
    • Allstate Insurance
    • Liberty Mutual Insurance
    • Nationwide Insurance
    • The General Insurance
    • Farmers Insurance
    • American Family Insurance
    • Erie Insurance
    • Amica Insurance
    • Travelers Insurance
    Insurance by State
    • Car Insurance California
    • Car Insurance Florida
    • Car Insurance Georgia
    • Car Insurance Michigan
    • Car Insurance New Jersey
    • Car Insurance New York
    • Car Insurance North Carolina
    • Car Insurance Pennsylvania
    • Car Insurance Texas
    • Home Insurance Florida
    • Home Insurance Texas
  • Personal Finance
    Compare
    • Current interest rates
    • Compare rates
    Use Calculators
    • Debt consolidation calculator
    • Net worth calculator
    • Personal finance calculators
    • Cost of living calculator
    • All calculators
    Get Advice
    • Retirement advice
    • Debt management
    • Improve your credit score
    • Career resources
    • Tax advice
    • Insurance basics
    • Real estate tips
    • Personal finance glossary
  • Retirement
    Get Advice
    • Best Roth IRA accounts
    • Best retirement plans
    • How to open a Roth IRA
    • 401(k) rollover guide
    • Roth IRA vs. Roth 401(k)
    Use Calculators
    • 401(k) retirement calculator
    • Retirement savings calculator
    • Roth IRA calculator
    • IRA minimum distribution calculator
    • Social security benefits calculator
    • All retirement calculators
    More Information
    • What is an IRA?
    • What is a Roth 401(k)?
    • 401(k) contribution limits
    • Contributing to IRA during retirement
    • Best age for Social Security retirement benefits
    • Roth IRA 5 year rule
  • Create Account
  • Dashboard
  • Alerts
  • Settings
  • Support
  • Logout
Share

6 surprising facts about a living revocable trust

Judy Martel
January 15, 2016  in  Retirement

1 of 7

Why have a living revocable trust? | iStock.com/DNY59
Why have a living revocable trust?

iStock.com/DNY59

Revocable trusts, commonly called “living trusts,” are an effective estate-planning tool for avoiding the costs and hassles of probate, preserving privacy and preparing your estate for ease of transition after you die.

A trust is a legal document that authorizes a trustee, who can be the grantor (or the creator of the trust), to hold title to and manage assets. The grantor retains the ability to revise the trust up until death.

Unlike in a will, assets in a living trust will generally pass to heirs sooner. In many states — though not all — the process by which a will is probated through the courts is lengthy and expensive, says Russell Fishkind, partner at law firm Saul Ewing and author of “Probate Wars of the Rich and Famous.”

“Transferring assets into a trust could save months and thousands in legal fees,” he adds.

But aside from easing the burden and cost to loved ones, there are a few facts about living trusts that might surprise you. For example, did you know that the limit for Federal Deposit Insurance Corp. protection on bank accounts within a trust is higher than it is for an individual? Or, that certain assets should not be titled in the name of the trust?

Read on for 6 little-known facts about living trusts.

The Bankrate Daily

2 of 7

Not every asset should go into the trust | iStock.com/Courtney Keating
Not every asset should go into the trust

iStock.com/Courtney Keating

Assets with named beneficiaries, such as pay-on-death bank accounts, retirement accounts and life insurance policies, will usually pass directly to beneficiaries without going through probate. For that reason, many people don’t title them in the name of the trust. But in some cases, it makes sense to name the trust as the primary beneficiary, says Keith Braun, partner at Comiter, Singer, Baseman & Braun.

For example, if you name your child as primary beneficiary on a life insurance policy and that child is under legal age when you die, guardianship may be necessary to hold the proceeds, he says. But if the trust is the beneficiary, you can specify exactly how and when you want the money to be distributed to that heir.

Care must be taken in naming a trust as beneficiary of retirement assets because it is easy to make costly mistakes. If not handled properly, income tax on the IRA proceeds could be accelerated.

3 of 7

Increased FDIC protection © Christina Richards/Shutterstock.com
Increased FDIC protection

© Christina Richards/Shutterstock.com

Typically, an individual receives FDIC protection against losses on bank accounts, up to $250,000 per account. But many older people are invested conservatively, with much more than that in bank accounts, says Braun. With a living trust, they can maintain those accounts and still be federally insured.

According to the FDIC, each named beneficiary in a living revocable trust adds an additional $250,000 in protection. When 5 beneficiaries are added, the total trust protection maxes out at $1,250,000.

In the case of 6 or more beneficiaries, each beneficiary adds the $250,000 in protection, but only if they each have an equal interest in the trust. If not, the limit on protection varies, so contact the FDIC or check with your attorney if you plan to name more than 5 beneficiaries.

4 of 7

The trust is not always private | iStock.com/Thinglass
The trust is not always private

iStock.com/Thinglass

Privacy is one of the benefits of a living trust, says Fishkind. Because the trust does not go through the court probate process, it is not part of the public record. A will is public, however, and available to anyone who requests a copy from the courts.

In a living trust, beneficiaries who will receive an immediate distribution are entitled to a copy of the trust after the grantor’s death. State law determines whether secondary beneficiaries can obtain a copy, says Fishkind.

But there is a situation where terms of the trust could also be opened up to all interested parties, even beneficiaries who have been disinherited. Fishkind says that if an heir contests the estate and sues the trustee in court, “in the course of discovery, the heirs will get a copy of the trust.” If the trust document is part of the court record, it likely would become public.

Even so, Fishkind adds, the trust is much more private than a will because it is not available to the public except in cases of litigation.

5 of 7

A trust doesn't replace a will | iStock.com/AndreyPopov
A trust doesn’t replace a will

iStock.com/AndreyPopov

Creating a trust doesn’t get you out of writing a will. “Sometimes clients think they only need a living trust, but they need a pour-over will as well,” says Braun.

The purpose of a pour-over will is to direct the transfer of the grantor’s assets, other than usually tangible personal property, upon the grantor’s death. A will is also necessary for naming guardians for minor children, which you can’t do in a living revocable trust.

But there’s another, less-known reason for having a will that involves claims against the estate. “Under probate, you can limit the time period when creditors can file a claim,” Braun says. “In Florida, for example, this time period is generally 3 months. Without probate, creditors may come after assets for up to 2 years.”

Assets in a living trust are not safe from creditors, even though they don’t go through probate. But initiating probate will cause the shortened statute of limitations against creditor claims to apply to all assets, even those held in the trust, Braun says. “It doesn’t really matter which assets go through probate.”

6 of 7

A trust doesn't alter state tax obligation | iStock.com/TheaDesign
A trust doesn’t alter state tax obligation

iStock.com/TheaDesign

Not all states impose an estate or inheritance tax, and typically any taxes are levied by the state where the decedent lived at the time of death. But what about trusts? Titling assets in a living trust will not reduce or eliminate state inheritance or estate taxes.

Braun says real and tangible property, such as a home or other physical assets, will be subject to taxes in the state where they’re located, if that state imposes a tax, no matter where the decedent lived. That’s true even if the property is titled in a living trust.

On the other hand, intangible assets, such as brokerage and bank accounts, are taxed according to where the decedent lived, no matter where the account’s institution or branch is located.

7 of 7

Trustee fees typically lower than executor fees | iStock.com/strixcode
Trustee fees typically lower than executor fees

iStock.com/strixcode

While in some cases it might cost more to draft a trust than a will, the ongoing fees are typically less than those charged by executors for assets that are probated through a will.

Family members who serve as executors of a will or trustees of a living trust often don’t take a fee or charge less than a professional would. But if a professional is designated in either role, there will be a fee.

For probated assets, such as those in a will, Fishkind says an example of a state’s executor fee schedule might be as follows:

  • 5% on the first $100,000 in assets.
  • 4% on the next tier, from $100,000 to $200,000.
  • 3% on assets above $200,000 up to $700,000.
  • 2.5% from $700,000 to $4 million.

“Compare that to trustee fees that are typically closer to 1% on total assets,” he says.

Fees will vary depending on where you live and the size and complexity of your estate.

Related Links:
  • How a restricted application for Social Security spousal benefits works
  • What is an IRA account? It’s a tax gift from Uncle Sam for your retirement
  • All about IRA accounts for novices
Related Articles:
  • Bequeathing IRA to a trust
  • First steps for IRA investors
  • Baby steps to retirement

You may also like

  • 5 critical questions before leaving an inheritance

  • Unusual wills and strange bequests from eccentric folks

  • DIY is no substitute for a lawyer in estate planning

  • The first steps to take when settling an estate

  • Pay debts and taxes before distributing a trust’s assets

  • You’re the executor of an estate? Here are 7 tips for getting through it

  • About Us
  • Press Room
  • Contact Us
  • Careers
  • Advertise With Us
  • Latest News
  • Popular Topics
  • Glossary
  • Compare Rates
  • Understand Bankrate's Averages
  • Privacy Policy / Your California Privacy Rights
  • Terms of Use
  • GLBA Annual Notice
  • Licenses
  • Sitemap
How we make money

Bankrate.com is an independent, advertising-supported publisher and comparison service. Bankrate is compensated in exchange for featured placement of sponsored products and services, or your clicking on links posted on this website. This compensation may impact how, where and in what order products appear. Bankrate.com does not include all companies or all available products.

Maximize Your Money. Get Expert Advice & Tools. Master Life's Financial Journey.

You have money questions. Bankrate has answers. Our experts have been helping you master your money for four decades.

Our tools, rates and advice help no matter where you are on life’s financial journey.

Facebook logo Twitter logo
Follow Us

Bankrate, LLC NMLS ID# 1427381 | NMLS Consumer Access
BR Tech Services, Inc NMLS ID# 1743443 | NMLS Consumer Access
© 2019 Bankrate, LLC a Red Ventures Company All Rights Reserved.

United States United Kingdom