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Article provided courtesy of Michael Okby

Michael Okby, CRPS® Wealth Advisor
340 Broadway, Saratoga Springs, NY 12866
518-583-5601 | advisor.morganstanley.com/the-okby-group

You have worked long and hard to achieve success and build wealth for you and your family. There have been numerous challenges along the way. You may be at a point now where your greatest challenge is preserving your wealth and building a plan for its transition to those you choose in a way you choose. Welcome to estate planning. Estate planning carries many definitions and often means different things to different people. Your plan should be customized to provide instructions on how things you own, including financial assets, are to be managed and/or distributed during your life, during incapacity and at your death. Your plan should specify who your beneficiaries are and how they are to benefit from what you leave behind. Many want their estate plan to have certainty and simplicity. However, an effective estate plan has to address the exact opposite – uncertainty and complexity.

To put your estate planning blueprint into motion, you may need to consider the creation of one or more trusts. Trusts are legal documents that contain the instructions to implement your estate plan. And yes, unless you have experience reading and understanding these types of documents, they may bring another level of confusion to your efforts. A key resource for you during this estate planning process is an experienced estate planning attorney. He or she will meet with you to develop your plan and write a Will, trust and possibly other legal documents. This guide is designed to help you prepare for your meeting with your estate planning attorney. It includes some questions and answers, definitions and ideas you might want to consider when meeting with your attorney.

YOUR REVOCABLE LIVING TRUST IS A FLEXIBLE FINANCIAL AND ESTATE PLANNING TOOL

A revocable living trust is established while you are alive through a formal written legal document. The trust agreement allows you to transfer ownership of your property and/or assets from your name to the name of the trust. The terms of the trust agreement determine how your assets are managed while you are alive and how assets are to be held or distributed after your death.

There are several components of a revocable living trust, all of which you have control over: 
  • You are the grantor or creator of the trust.

  • Similar to your Will, your revocable living trust is highly personal and customized to your situation and family.

  • You may act as the trustee of your revocable living trust during your lifetime. Your trust agreement should also list one or more successor trustees who takes over the trusteeship upon your incapacity or death. 

  • You name the beneficiaries of your trust. Beneficiaries can include anyone – family members, friends, colleagues. Beneficiaries can also include charities. In addition, beneficiaries can include funding other trusts. Multiple beneficiaries are common. 

As its name implies, your revocable living trust can be revoked, changed or terminated at any time. Typically, your revocable living trust becomes irrevocable upon your death. By itself, a revocable living trust does not reduce any estate tax liabilities. However, it is common for a revocable living trust to be structured where upon your death, certain tax savings, deferrals and minimization strategies can be established. 

ADVANTAGES OF A REVOCABLE LIVING TRUST

  • FLEXIBILITY

     A revocable living trust allows the client to control everything about the trust; perhaps most important are the instructions for the future management and distribution of trust assets.

  • AVOIDANCE OF PROBATE

    Probate is the legal process required to determine that a Will is valid. Probate can be costly and time consuming and follows state law where you die. Your Will is also filed with Probate Court where the deceased person resides making it a document that can be viewed by the public. Many fund and utilize revocable living trusts to avoid the probate process. And, a revocable living trust remains private.

  • CONTINUITY OF MANAGEMENT DURING DISABILITY

    A revocable living trust may be the best way to ensure that assets remain available to you should you become physically or mentally incapable of managing your affairs. Many believe that a Power of Attorney (“POA”) can provide continuity of management but many times, the POA does not provide details on how the assets will be managed or utilized. The successor trustee named in your revocable living trust takes over as trustee should you become incapacitated, thus allowing for continuous management and a way to provide financial resources for you and others who may be dependent on support.

  • AVAILABILITY OF ASSETS AT DEATH

    Assets in a revocable living trust at your death are generally available to pay end-of-life expenses more quickly than waiting for the completion of the probate process.

DISADVANTAGES OF A REVOCABLE LIVING TRUST

  • RE-REGISTRATION OF PROPERTY

    Assets funding the trust must be reregistered in the name of the trust prior to death in order to avoid probate. This can be cumbersome, especially with an asset like real estate. 

  • LEGAL / ADMINISTRATIVE COSTS

    Depending on the complexity of your estate or assets, a revocable living trust may cost more to create than a typical Will. In addition, if there is the need for an amendment to your revocable living trust as your wealth changes or if there are life changes, there will be a legal cost for that document preparation. Finally, any trustee you name for your revocable living trust may charge a fee for its services. This, of course, will not apply if you are serving as your own trustee, which is likely during your life. 

MYTHS ASSOCIATED WITH A REVOCABLE LIVING TRUST

  • MYTH: A revocable living trust saves on taxes.

    No, a revocable living trust does not save on income taxes or estate taxes. During the grantor’s life, assets in a revocable living trust are treated as if they are your own property for estate tax purposes and trust activity is captured on your personal tax return.

  • MYTH: Heirs cannot change a revocable living trust.

    When the revocable living trust becomes irrevocable at your death, changes to the trustee are likely to be allowed. In addition, depending on which state governs the trust, it is possible that certain terms of the trust can be changed. Finally, a beneficiary can always petition the court seeking either a revision to the terms of the trust agreement or to terminate the trust. 

  • MYTH: A revocable living trust protects assets from creditors.

    This is not true. Creditors may reach the assets in your revocable living trust during your lifetime. 

  • MYTH: Assets are distributed more quickly from a revocable living trust.

    This is not always true. While some assets may be released to pay for end-of-life medical expenses or taxes, there is often a notice period for creditors to access trust assets. There is also a settlement period, which can take several months. 

  • MYTH: Lower administrative costs.

    As noted above, a revocable living trust can include legal and/or administrative fees that can add up. These costs may be less or more than the costs associated with creating and probating a Will. Despite some disadvantages and myths associated with a revocable living trust, many find that this basic estate planning tool is an excellent and flexible complement to a Will and other planning documents.

Preparing for Your Meeting with an Estate Planning Attorney; Article by Morgan Stanley and provided courtesy of Morgan Stanley Financial Advisor.

H. Michael Okby is a Financial Advisor with the Wealth Management division of Morgan Stanley in Saratoga Springs, NY.  Morgan Stanley Smith Barney LLC (“Morgan Stanley”), its affiliates and Morgan Stanley Financial Advisors or Private Wealth Advisors do not provide tax or legal advice.  Clients should consult their tax advisor for matters involving taxation and tax planning and their attorney for matters involving trust and estate planning and other legal matters.  The information contained in this article is not a solicitation to purchase or sell investments. Any information presented is general in nature and not intended to provide individually tailored investment advice. The strategies and/or investments referenced may not be appropriate for all investors as the appropriateness of a particular investment or strategy will depend on an investor's individual circumstances and objectives.  Investing involves risks and there is always the potential of losing money when you invest. The views expressed herein are those of the author and may not necessarily reflect the views of Morgan Stanley Smith Barney LLC, Member SIPC, or its affiliates.   

Morgan Stanley Smith Barney LLC does not accept appointments, nor will it act as a trustee but it will provide access to trust services through an appropriate third party corporate trustee.

This material has been prepared for informational purposes only. Information contained herein is based on data from multiple sources considered to be reliable and Morgan Stanley Smith Barney LLC (“Morgan Stanley”) makes no representation as to the accuracy or completeness of data from sources outside of Morgan Stanley.

Trusts are not necessarily appropriate for all clients. There are risks and considerations which may outweigh any potential benefits. Establishing a trust will incur fees and expenses which may be substantial. Trusts often incur ongoing administrative fees and expenses such as the services of a corporate trustee or tax professional.

The trust services referenced herein are provided by the third parties listed who are not affiliated with Morgan Stanley. Neither Morgan Stanley nor its affiliates are the provider of such trust services and will not have any input or responsibility concerning a client’s eligibility for, or the terms and conditions associated with these trust services. Neither Morgan Stanley nor its affiliates shall be responsible for content of any advice or services provided by the unaffiliated third parties listed herein. Morgan Stanley or its affiliates may participate in transactions on a basis separate from the referral of clients to these third parties and may receive compensation in connection with referrals made to them. CRC 5686183 5/2023