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Sather Financial Group

120 E Constitution St
Victoria, TX 77901

(361) 570-1800


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Do You Need A Revocable Trust?

Walter and Jennifer were new clients seeking help with their investments. However, we have never met a person who only had investing needs. Usually, a worthwhile conversation will also entail estate planning, retirement planning, risk management, tax management and a variety of other issues.

As I asked the couple about their estate plan Walter quickly stated it was all taken care of. Jennifer’s eyes did not convey confidence in the substance of the plan.

Walter added he was about to put everything in a “trust.” This is a bit like asking what kind of car someone has and them replying that it has wheels. There are many types of trusts with unlimited variations.

Jennifer blurted out that some “cheesy” lawyer from out of town came through telling everyone at the coffee shop about the evils of probating an estate through the court. This was all Walter needed to hear. For $5,000 in legal fees the couple would own a thick three ring binder of legal documents. However, they didn’t really understand what they were purchasing.

Walter produced a brochure extolling the virtues of a living or revocable trust. He pointed to it and exclaimed, “This is what we are doing.” He added he wanted to avoid estate taxes and keep money away from creditors.

It was certainly an admirable goal, but a bit misguided.

The assets inside a “living” or revocable trust will avoid the need for probate. However, I asked Walter if he planned on retitling all of his real estate, autos and brokerage assets. There was a blank stare.

In order to get the benefits of avoiding probate, assets would need to be retitled and transferred into the trust. Walter didn’t seem to like that.

Furthermore, since we have independent estate administration in Texas, the cost is not nearly as expensive as other states such as California or New York. As I said this, Walter recalled the lawyer was from California.

Walter continued staring at the brochure and said, “This trust will also allow for the management of my assets if I become incapacitated.” I agreed with him and explained that a durable power of attorney would accomplish the same, but for a fraction of the price.

Walter countered asking if the power of attorney would protect his assets from estate taxes or creditors.

I acknowledged it would not, but added that neither would a living trust. His eyes squinted. “What do you mean?”

Although a revocable living trust can manage assets and avoid probate, the assets still belong to you. If you have full access to them, those assets are also part of your estate and therefore exposed to potential estate taxes.

Additionally, if assets are part of your estate they are also potentially exposed to your creditors.

Delving deeper into the discussion, I asked the couple how they planned on modifying their beneficiary designations. As we reviewed their net worth statement they listed a life insurance policy, a 401(k) account, an IRA and a joint checking account.

Jennifer asked why this mattered.

You can spend tons of money creating a variety of trusts to receive and manage assets. However, any asset with a beneficiary designation passes upon death via operation of law. This means your last will and testament or trust could say one thing. However, if the beneficiary designation says something completely different the designation will circumvent all the extensive estate planning you completed.

Jennifer was glad they hadn’t paid anything yet. It was obvious the couple had much to learn.

To help the couple summarize, a revocable trust does not necessarily avoid estate taxes. It must be coordinated with other trusts to do so. A revocable trust does not escape the claims of creditors. As such, asset owners need to double check their liability insurance.

An updated durable power of attorney allows for the management of assets if a person is incapacitated. This document should be reviewed annually.

Regularly review accounts with a beneficiary designation. Coordinate beneficiary designations to coincide with, and complement, a last will and testament.

Lastly, don’t succumb to “doom and gloom” fear mongering by out-of-town “experts.” Planning should be a logical process. Furthermore, there are many competent professionals available locally. This should allow the process to move along quicker and in a more customized and economical pace.

Dave Sather is a Victoria certified financial planner and owner of Sather Financial Group. His column, Money Matters, publishes every other week.

Originally published February 6, 2016, Victoria Advocate