Revocable trusts could be more trouble than they’re worth
Q: A few weeks ago, you said that revocable trusts can be troublesome to maintain and operate for the rest of our lives. Why is that the case? Maybe some examples would be helpful. My wife and I are 81, so we need to know what we are getting into. We need to know how much work is involved on our part in maintaining and operating the trust after it has been established.
A: A revocable trust can work really well in the right circumstances. But for many people, it turns out to be more trouble than it is worth.
For instance, you might have certificates of deposit at a number of different banks, with each of them titled in one or both of your names and one of your children. You may have done this in order to be sure the CDs are insured. But when you move them over to your trust, there is just one owner. That means you will need one bank for each CD.
Plus, if your CDs are of varying durations, it may take years before they can all be changed over to the trust without early termination penalties.
You might own a number of rental homes or other pieces of real estate. Each property needs to be individually transferred by deed to the trust. Your tenants, if you have them, would need to sign leases with your trust and start making payments to your trust. You would also need to be sure your trust is covered with regard to liability insurance.
If you have accounts at a credit union, you may not be able to move them to the trust, as credit unions often don't offer this type of account.
One day down the road, you might decide that having the revocable trust is more trouble than it's worth, and you will then need to spend just as much time and money undoing the trust as you did getting it all set up. Plus, you will need to spend money with an attorney to revoke the trust and write a set of replacement wills to dispose of your property when you pass away.
Those are just some of the reasons why revocable trusts can be difficult to maintain and operate.
Q: It has always been my understanding that when a spouse with children passes away without a will, the house is then owned one-half by the surviving spouse and one-half by the children. But in recent columns, you said the surviving spouse gets the house. Please clarify.
A: The rules changed in 1993. Until then, your understanding was correct. But after Sept. 1, 1993, all community property passes to the surviving spouse as long as neither spouse has any prior children.
If either spouse has children from a prior marriage or relationship, then the rule as you stated it would still apply.
The information in this column is intended to provide a general understanding of the law, not legal advice. Readers with legal problems, including those whose questions are addressed here, should consult attorneys for advice on their particular circumstances. Ronald Lipman of the Houston law firm Lipman & Associates is board-certified in estate planning and probate law by the Texas Board of Legal Specialization. Email questions to stateyourcase@lipmanpc.com.