A Global Pandemic Highlights 3 Benefits of Revocable Trusts

09.01.2021 - Gail E. Cohen, Chair and General Trust Counsel

Key Takeaways
  • Use a revocable trust to transfer assets to your heirs.
  • Fund the revocable trust as soon as possible and with as much of your estate’s assets as possible.
  • Make sure your trust document includes provisions for a successor trustee to take over if your trustee becomes ill or is unable to serve for some other reason.

Revocable trusts have become the workhorse of modern estate planning, mainly because they allow heirs to avoid probate court and receive the estate’s assets relatively quickly.

The outbreak of the COVID-19 pandemic has also shown that revocable trusts can be particularly valuable during times of crisis, as the world confronts challenges many people never anticipated.

Witnesses May Not Be Necessary for Trusts

More than 300 million people in the US are now living under “stay at home” orders and those who are exhibiting signs of COVID-19 are subject to even stricter isolation standards. For someone who is thinking about drafting a will under these conditions, it is probably unwise (and could be illegal) to assemble the group of people necessary to serve as witnesses, although some states have enacted emergency legislation to allow wills and other documents to be witnessed through video conferences.

On the other hand, many states allow individuals to create or update a revocable trust without witnesses, whether as part of a routine estate planning practice or in direct response to a health threat. While trust documents typically need to be notarized, that requirement depends on the types of assets going into the trust, not the mere creation or amendment of the trust itself. And many states allow trust documents to be notarized remotely using online technologies.

Probate Courts Are Closed for Business

In many cases, people fund their trusts with only those accounts that are easy to reregister in the name of the trust, and rely on a “pour over” provision in their wills to transfer their remaining assets into the trust when they die. But we have always believed that most individuals should fully fund their trusts during their lifetimes. The conditions we are encountering today have reinforced that conviction.

The COVID-19 pandemic has all but closed down US courts, making it extremely difficult to go through the probate process. Without probate, which gives your personal representative the power to manage your estate’s property, assets that are not already in the trust cannot be managed or poured over into your trust.

During a time of extreme uncertainty and heightened market volatility, like the environment we are in now, this can be especially frustrating for heirs and costly to your estate. Your heirs might discover that the assets in your estate are frozen and that they are powerless to do anything about it.

Similar problems can arise if a personal representative is already appointed to administer an estate. If the personal representative becomes unable to act, court involvement is generally required to appoint a successor or alternative—and that simply may not be possible in the current circumstances.

Power of Attorney Can Get Complicated

When COVID-19 symptoms become acute, one common treatment requires connecting the patient to a ventilator. That process can require inducing a coma until the patient can begin breathing on their own, resulting in a period of incapacitation that prevents patients from making financial decisions.

Many people prepare for this type of scenario by authorizing someone to act as their agent while they are incapacitated by means of a durable power of attorney.

But this approach can present a major drawback in times of crisis: The power of attorney is not automatically accepted, and your agent can be left unable to do what needs to be done if the other side will not acknowledge the document. Banks, brokerage firms and other institutions can require additional proof of an agent’s authority or require signatures on their own forms, all of which can get complicated—and waste time you don’t necessarily have.

However, if you prepare for this type of situation by establishing a revocable trust, you can include language in your trust document that automatically transfers those responsibilities to a “successor” trustee if your primary trustee is unable to act. That successor could be an individual or corporate trustee, such as Fiduciary Trust. In either case, the successor trustee usually can handle your finances almost immediately without the need for any court involvement. The successor trustee can step in to pay your bills and also fulfill longer-term objectives, which can include donations to charitable organizations or distributing year-end gifts to family members if the authority is included in the trust document.

Fiduciary Trust Can Help

At Fiduciary Trust, we look forward to helping our clients when they most need us. In this time of crisis, our experienced staff can help you evaluate the estate plan you currently have in place and any changes you may want to make.

To learn more about our role as trustee, executor or transferring assets into a revocable trust, please contact your Fiduciary Trust representative or call us at (877) 384-1111.

This article also contains more details about The Benefits and Shortcomings of Revocable Trusts.

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