Revocable Trusts (or Living Trusts) are a great way to organize your estate and ensure your assets are passed on per your specifications. In South Carolina, they are also a great tool for avoiding probate and the mandatory creditor claims period (generally, one year from date of death). However, if your assets are not in your revocable trust when you die, you may be subject to probate. In South Carolina, if your estate is valued at less than $25,000, then you can file a Small Estate Affidavit and skip the normal probate process. You must wait at least 30 days after date of death and provide an inventory of all probate assets to the court.
Notable exceptions to probate inclusion are Pay on Death (POD) accounts, Transfer on Death (TOD) accounts, joint assets with rights of survivorship, retirement plans or annuities with designated beneficiaries, and life insurance death proceeds. These all pass to the joint tenant or designated beneficiary automatically at death and avoid probate. Many who have joint assets with their spouse believe they do not need a revocable trust to avoid probate, and that is correct, for the first death. However, the second spouse’s death will cause probate inclusion in the surviving spouse’s estate if the asset remains in his or her individual name at death.
While your trust does not need to own your life insurance policy for the proceeds to avoid probate (and should not hold your IRA), that does not mean the trust should not be the designated beneficiary. If you have a life insurance policy with a $2 million death benefit and your son as the sole beneficiary, you may not want him to receive $2 million immediately upon your death. If paid to your trust, that death benefit will be distributed per the terms of the trust, just like the rest of your assets. Trustees often utilize those death benefits to pay estate expenses, like funeral costs. Designating your revocable trust as the beneficiary of your insurance policy, annuity, or IRA, may be a good option depending on your personal circumstances. Before you designate your trust as a beneficiary you should always consider the tax consequences. The SECURE Act has substantially altered the treatment of trusts as designated IRA beneficiaries and provided new rules for Required Minimum Distributions (RMDs). In addition, trusts are taxed at the highest rate (as opposed to the tax rate of the beneficiary), so the tax consequences can be substantial.
Often forgotten in funding revocable trusts are assets like boats and cars, which require a transfer of title to the trust, or they will be considered probate assets. To re-title existing assets, you must go to the South Carolina DMV for vehicles, or the South Carolina Department of Natural Resources for boats other than vessels. For clients who purchase new vehicles every year or two and want to avoid the hassle of the DMV (let’s face it, no one wants to go to the DMV), titling a new purchase to the trust is considerably easier, and a recorded Certification of Trust will allow the dealer to title the vehicle to the trust at purchase.
Revocable trusts are an ongoing responsibility. If neglected, your trust will not work as you anticipated and you could find yourself (or your spouse or loved one) in lengthy probate administration. We generally recommend that clients assess their assets on an annual basis and inform us when they make significant purchases to ensure those assets are appropriately held. Contact Jolley Law Group if you need to create a living trust or have us review an existing one.
