A Revocable Trust, commonly referred to as a Living Trust, is a widely utilized estate planning tool that provides individuals with the ability to manage their assets throughout their lifetime while ensuring a seamless transfer to beneficiaries upon death. One of its primary advantages is the ability to bypass the often lengthy and expensive probate process. Unlike an irrevocable trust, a revocable trust offers flexibility, allowing the grantor to modify or revoke it at any time, ensuring ongoing control over their estate.

A key strategy in revocable trust planning is the A/B Trust arrangement, which helps married couples maximize their estate tax exemptions. Additionally, deciding whether to establish joint or separate revocable trusts requires careful consideration of asset protection, tax implications, and management preferences.

• Avoidance of Probate: Assets within a revocable trust pass directly to beneficiaries, avoiding probate delays, reducing legal fees, and maintaining privacy. Unlike a will, which becomes public record during probate, a trust remains confidential.
• Planning for Incapacity: The grantor can name a successor trustee to manage trust assets if they become incapacitated, eliminating the need for court-appointed guardianship.
• Flexibility: Since the trust is revocable, the grantor retains full control, with the ability to modify terms, update beneficiaries, or dissolve the trust as needed.
• Estate Tax Benefits: High-net-worth individuals can integrate revocable trusts with estate tax strategies, such as A/B Trust planning, to optimize tax exemptions and reduce liabilities.
• Privacy Protection: Unlike wills, revocable trusts are not part of public records, ensuring discretion regarding asset distribution and beneficiaries.

• No Estate Tax Protection: Assets in a revocable trust are still considered part of the grantor’s taxable estate, offering no estate tax advantages.
• No Asset Protection from Creditors: Because the grantor maintains control, the assets remain vulnerable to lawsuits, creditors, and divorce settlements.
• Limited Income Tax Benefits: Revocable trusts don’t offer income tax advantages; income is taxed directly to the grantor under their Social Security number.
• Upfront Cost and Complexity: Creating a trust is more expensive and time-consuming than drafting a will, often requiring an attorney’s help and ongoing maintenance.
• Ongoing Management Required: Assets must be retitled into the trust (a process called funding the trust). If this is skipped or incomplete, those assets may still go through probate..

Establishing a revocable trust involves several essential steps to ensure its effectiveness. The grantor first creates and funds the trust, often serving as the initial trustee and maintaining full control over the assets during their lifetime. A successor trustee is designated to take over management and distribution upon the grantor’s death or incapacity, thus avoiding probate. To ensure proper functionality, assets must be retitled in the trust’s name; otherwise, any remaining non-trust assets may still be subject to probate. Upon the grantor’s passing, the successor trustee distributes assets in accordance with the trust’s terms, which may include continued management for minor children or beneficiaries with special needs.

The A/B Trust strategy is a common estate planning tool designed to minimize estate taxes by leveraging both spouses’ exemptions. This approach divides the estate into two separate trusts upon the first spouse’s death:

• A Trust (Marital Trust): Holds the surviving spouse’s portion of the estate, allowing them continued access to assets, which remain part of their taxable estate. Certain provisions, such as QTIP (Qualified Terminable Interest Property), can ensure the spouse benefits while preserving assets for other heirs.
• B Trust (Credit Shelter Trust): Contains the deceased spouse’s assets, up to the federal estate tax exemption limit (currently $13.61 million in 2024). The surviving spouse may access income and, in some cases, principal, but the assets are shielded from estate taxes when the second spouse passes.

• Estate Tax Reduction: The B Trust allows the first spouse’s assets to bypass taxation in the surviving spouse’s estate, potentially saving significant taxes.
• Asset Protection: Assets within the B Trust are protected from creditors and ensure a structured distribution to heirs.
• Wealth Preservation: The strategy ensures that assets are reserved for children or designated beneficiaries while still providing for the surviving spouse’s needs.

• Complexity in Administration: After the first spouse dies, the estate must be split into two separate trusts (A and B), which can be legally and financially complex. Requires appraisals and precise valuations at the time of the first death.
• Loss of Step-Up in Basis for B Trust Assets: Assets in the B Trust (bypass trust) do not receive a second step-up in basis at the death of the surviving spouse.

A crucial decision in estate planning is whether to establish a joint trust or separate trusts. A joint trust is created by both spouses, holding shared and individual assets, while separate trusts provide distinct control over each spouse’s estate.

A Revocable Trust is a crucial component of estate planning, offering asset control, probate avoidance, and efficient wealth transfer. For married couples, deciding between joint and separate trusts or incorporating A/B Trust strategies requires careful planning based on tax considerations, family dynamics, and long-term financial objectives.

Thoughtful trust structuring can help minimize tax burdens, protect assets, and achieve legacy goals while maintaining control over the estate. Whether opting for a single or multiple trusts, revocable trusts remain an essential tool for comprehensive wealth management.

Disclosure: The information in this document is intended for general informational purposes only and should not be considered investment advice or a recommendation of any specific tax, financial planning, or investment strategy. Additionally, this document does not constitute a solicitation or an offer to provide specific tax, estate planning, or financial planning services. Individuals should consult qualified tax, legal, and financial professionals for personalized advice before implementing any charitable giving strategies.

Securities offered through Sanctuary Securities, Inc., Member FINRA, SIPC. Advisory services offered through Sanctuary Advisors, LLC., an SEC Registered Investment Advisor. Burnham Harbor Private Wealth is a DBA of Sanctuary Securities, Inc. and Sanctuary Advisors, LLC.