With the economy, politics, and the future of the estate tax in a state of uncertainty, clients may procrastinate on estate planning, particularly when the perception is that its primary benefit is tax planning. Particularly during this time, it's important to assess and describe to clients the benefits of estate planning and use of the revocable trust as a vehicle for estate planning in cases where that tool is appropriate.

No absolute rules exist for determining when a living trust should or should not be used in estate planning. The type of assets owned, family situations, personal desires of clients, net worth, tax ramifications, complexity of the plan of distribution, and various other factors must all be considered in designing any estate plan. However, some fact situations do warrant the use of a living trust more frequently than others. Following are typical scenarios where use of a living trust may be warranted.

A living trust will avoid probate while allowing the client to retain management and control of assets. Joint tenancy or gifting of assets avoids probate, but also changes ownership of assets, with all of the problems inherent with relinquishing ownership and control. Many clients are unaware that creditors of any joint tenant may reach the jointly held property. A joint tenancy account with an "OR" between names allows either joint tenant to completely deplete the account, although it does allow joint tenants flexibility since all signatures are not required for withdrawals. The "AND" designation between names protects joint tenants from withdrawal by one joint tenant without the permission of all joint tenants. However, the "AND" restriction requires whomever has funded the account to obtain the approval of all other joint tenant(s) prior to making withdrawals. Posturing among family members may change in this situation. Even the logistics of obtaining signatures may create difficulties. If a child whose name is added as joint tenant on the parents' assets goes through a divorce, the existence of the jointly held account may affect the child's divorce settlement, and jointly held assets could be put at risk. (The extent of risk depends upon the state of residency and specific methods of titling.) With the increasing divorce rate, joint tenancy with children becomes more and more risky.

A living trust avoids probate without the risks involved with joint tenancy and can be structured so grantor-clients retain all rights of management and control, just as if they owned the assets in individual name(s).

If the personal representative who would be chosen to administer the client's estate is not a resident of the client's state, probate statutes in some states allow disqualification of the named personal representative. If the personal representative is approved, it is more likely that a bond will be required of an out-of-state personal representative, even if the will waives bond. Logistically, it is difficult for an out-of-state personal representative to administer an estate since statutory waiting periods make it very difficult to close an estate in one trip to the decedent's county of residence.

When a family business is involved, when extensive travel is planned, or when the client believes that there may be a time in the future when he or she simply won't want to bother with management of assets or may be unable to manage assets due to incapacity, execution of a living trust now simplifies transfer of management to someone else at a later date. Assets are transferred into the living trust immediately, with the client as primary trustee. If in the future, the primary trustee chooses to resign or requirements as outlined in the trust are met to prove incapacity, the successor trustee(s) assume management.

Many married clients whose assets exceed the current applicable exclusion amount have wills which include credit shelter trusts or other provisions which utilize the estate tax credits of both spouses, to shelter assets on up to twice the applicable exclusion amount. However, many of these couples hold title to all or the majority of their assets in joint tenancy. The joint tenancy will avoid probate, but will also bypass the estate tax planning contained in the wills. On the other hand, if the assets are solely owned and covered by the will, both spouses' estates are subject to probate.

Living trusts avoid probate in both estates and can incorporate estate tax planning. Will provisions may minimize or eliminate estate tax, and joint tenancy avoids probate, but living trusts accomplish both goals. In this period of uncertainty in regard to federal and state estate tax, a revocable trust with estate tax planning is especially beneficial. A revocable trust with disclaimer provisions includes important estate tax planning while leaving significant flexibility for the survivor.

As the American public becomes more and more mobile and the frequency of clients owning real estate in a state other than the state of residency increases, elimination of probate proceedings in more than one state becomes an important consideration. A living trust eliminates ancillary probate proceedings in non-residence states as well as probate in the state of domicile. Even if out-of-state real estate is currently held in joint tenancy, transfer into a living trust is beneficial since it will eliminate the probate on the second death and will avoid probate even if an accident leaves no survivor.

When a client asks about ramifications of gifting assets, the real objective may be probate avoidance. If assets which the client is contemplating gifting have appreciated in value, or have been depreciated leaving an income tax basis which is lower than the fair market value, then retaining the assets until beneficiaries inherit them may be beneficial. Lifetime gifts prevent the step-up in income tax basis which is achieved if assets are inherited (prior to January 1, 2010). After that date, if law isn't changed, some limitations will apply to stepped-up basis.

In estates where estate tax is eliminated through planning, or where estate tax does not apply, appreciated assets should usually not be gifted. Inherited assets will receive the stepped-up basis (limited as of January 1, 2010 if law does not change), whereas gifted assets will not. Exceptions to this rule are where clients simply want beneficiaries to receive and enjoy assets now, or where nursing home expenses are imminent and long-term care insurance is not in place to cover costs. When current values or future growth will likely cause the size of the taxable estate to exceed the client(s)' applicable exclusion amount, then gifting should be considered since federal estate tax rates are significantly higher than capital gains tax rates. (In jurisdictions imposing state estate tax, practitioners must also take into consideration state estate tax rates when balancing the pros and cons of gifting.)

Regardless of the net worth of the client, many people appreciate the availability of an estate plan which can be completed while both spouses are healthy and will avoid probate on both estates. Joint tenancy avoids probate on the first estate, but the surviving joint tenant will be left with a probate problem unless planning is implemented after the first death. This is typically not a good time for planning, due to the life changes and emotional trauma which accompany loss of a spouse. Execution and funding of living trust(s) when both spouses are healthy avoids probate in both estates and eliminates the possibility that a surviving joint tenant may be unable to complete future planning due to incapacity or a joint accident.

Business owners are often very concerned about continuation of the business upon the owner's death or incapacity, maintaining privacy of business and personal financial affairs, and valuation of business assets. Liquidity for payment of probate or other postmortem administration expenses, taxes, and to pay beneficiaries who are not involved with the business present special challenges in estate planning when a family business is concerned. The living trust is one method of eliminating probate and minimizing tax liability and of maintaining privacy. Implementation of an estate plan which avoids probate may be especially cost effective in situations where a family business is involved since the accounting and record keeping required during the pendency of a probate with business assets may increase the cost of the probate process. Potential issues of determining the exact value of specific assets may be reduced if tax planning eliminates estate tax on a couple's assets of up to twice the applicable exclusion amount, or if the plan of distribution transfers business assets to specific beneficiaries. Options to purchase business assets may be granted to specific beneficiaries in the living trust agreement, with life insurance used to provide funds with which to exercise the option. All of these techniques of planning the business owner's estate would also be available with a will. However, business owners may prefer to avoid probate and appreciate the lifetime management provisions which may be incorporated into a living trust agreement. If a business owner becomes incapacitated, management provisions included in the trust agreement eliminate the need for guardianship or conservatorship proceedings, and keep business affairs private.

Many couples with minor children make use of joint tenancy and beneficiary designations to avoid probate. Since couples with minor children may be quite young themselves, the risk factor of neither joint tenant surviving or of incapacity of a surviving joint tenant is not as great as with an older couple. However, in some circumstances, a living trust should be considered for young people as well. Although beneficiary designations on life insurance policies avoid probate, minor children who are named as beneficiaries receive policy proceeds at the age of majority if the insured is deceased. A living trust may be named as beneficiary, with the living trust including a trust for minor children. In this way, probate is avoided, but the terms of the minor's trust apply to the insurance proceeds. The minor's trust will appoint a trustee to manage assets for the minor's benefit, and will delay outright distribution of assets to beneficiaries until the age designated by the parents in the trust agreement.

If a plan of distribution is not simply "all to spouse," the use of joint tenancy for probate avoidance is limited. It is very common for couples in second marriages to keep assets acquired prior to the second marriage titled in the name of each individual spouse. This is especially true if children by a previous marriage are involved. In community property states, separate titling may be used to identify property classified as individual property by a community property agreement. Whenever property is titled in the sole name of an individual, a living trust is one method of avoiding probate without affecting the sole rights of management and control of the individual clients.

When close relationships don't exist for the client, waivers may be more difficult to obtain from beneficiaries. If waivers aren't signed, statutorily required steps to notify beneficiaries of a hearing date must be taken, with the accompanying cost and time delays. In these cases, use of a revocable trust to hold all assets eliminates this requirement.

Same gender partners face unique challenges regarding the survivor's rights. Planning will obviously need to consider state law (which varies considerably), but the revocable trust is one method for partners to provide for the survivor within estate planning documents, while minimizing or eliminating notice and other requirements which can increase the likelihood of contests or issues from other beneficiaries. Within the revocable trust, provision can be made to include other beneficiaries when neither of the same gender partners survive.

The versatility of the revocable trust makes it a beneficial tool in many circumstances, not limited to those described above. This estate planning vehicle is advantageous whether estate tax planning is a primary goal, or whether efficient management and distribution of assets as designated by the grantor(s) is the focus.