3 Situations When A Living Revocable Trust May Make Sense

3 Situations When A Living Revocable Trust May Make Sense

By Melinda Gustafson Gervasi

November 3, 2023

America is made up for fifty different states.  Laws related to estate planning and probate are written at the state level.  That means there are fifty different sets of laws and regulations governing end-of-life matters.  It is critical to know the ins and outs of the laws of the state you reside in when creating an estate plan because terms, fees, and responsibilities can vary greatly.  For example, the cost of going through probate in Wisconsin is quite low compared to an estate in California.  More specifically, under Wis. Stats. 814.66 the fee assessed on a probate estate is 0.2 percent.  In contrast, according to online research the fee in California is more complicated and costly:

In California, statutory probate fees are based on the gross value of the estate and are as follows: 4% on the first $100,000; 3% on the next $100,000; 2% on the next $800,000; 1% on the next $9,000,000; 0.5% on the next $15,000,000.

Image by M. Gustafson Gervasi, 2023

Because probate in Wisconsin is not nearly as expensive as other states, I find that many of my Wisconsin clients can accomplish their goals without the cost and complexity of a Living Revocable Trust, which is a sophisticated tool that creates a virtual basket to hold your assets and distribute them at death, bypassing the probate court system.   However, there are 3 situations in which I think a Living Revocable Trust needs consideration:

1. Owning real estate in multiple states.  Years ago I had a client with a home in Wisconsin, a cabin in Michigan and a condo in Arizona.  If the client used a basic will, probate would happen in three states (WI, MI, and AZ).  Using a Living Revocable Trust would allow the properties to be re-titled and placed into the trust, which would distribute them at death, and thus avoid probate.  In this situation the client opted to use a more simple tool, the Transfer on Death Deed, which was available in 2 of the 3 states;
2. Families with second marriages and children from outside the union. In this situation you may want to use a Living Revocable Trust to create an asset pool the surviving spouse can use, but not deplete or re-direct to other people when the first spouse dies.  A Living Revocable Trust can be used to "lock-down" part of a couple's assets at the death of the first spouse in an attempt to ensure children from outside the marriage inherit.  This does set up a situation in which the surviving spouse's activity is scrutinized by the deceased spouse's children, which could lead to awkward holiday gatherings and tension; and
3. When you are "writing out" a natural heir from your estate.  A Living Revocable Trust allows for your final expenses to be paid and your assets distributed without going through probate.  Normally, the probate process requires notification of all "interested persons" -- those named in the will and those who would inherit under statutes if there were no will.  It acts as a check on the will to root out fraud or undue influence, and can create an easy venue for a disgruntled person to challenge a will.  Since a Living Revocable Trust does not go through the court process, these this too-easy to dispute path is avoided.  In a sense, it can reduce the chance of needless litigation.

Those are the 3 scenarios that immediately lead me to discussing a Living Revocable Trust with clients.  Note, a blog is NOT legal advice. It is meant to spark thought and discussion.  Please consult with an attorney in your home state for advice specific to your unique situation.  Thanks for reading, be well, and click FOLLOW in the upper right corner to enter your email and receive future posts.