The main advantage of revocable trusts over wills is that it doesn’t go through probate. This means that whatever assets are in the revocable trust are immediately transferred to the trust beneficiaries upon the death of the owner. These assets do not need to go to court for probate, saving the estate a lot of resources in the long run.
That’s the reason why revocable trusts are so attractive to people. But there are a lot of misconceptions about revocable trusts and the other advantages they have for an estate. The biggest misconception is regarding taxes.
Do Revocable Trusts Avoid Estate Taxes?
No. A revocable trust, by itself, does not avoid any taxes. It’s a see-through entity that functions the same way as a will. The distribution plan will work the same way as it would in a will, determining who will be in charge of the estate, who receives what assets, etc.
The instructions for both types of estate plans are the same. The only real difference is that a revocable trust doesn’t need to go through probate to be executed. Other than avoid court, a revocable trust and a will have the same plan and function in the same manner. Whatever can be done in a will can also be done in a revocable trust.
The only two reasons that people would prefer revocable trusts over wills are:
1. A revocable trust doesn’t go through probate
2. A revocable trust is a more private way to distribute assets.
A revocable trust and a will are the same in nature. The only difference is that the former avoids the probate process altogether. But it does not help the estate avoid taxes.