• the grantor(s), who create(s) and fund(s) the trust (also called the settlor(s));
• the trustee(s), who manage(s) the trust in accordance with the trust terms (the trustee often is the grantor during the grantor’s lifetime, with successor trustees designated in the RLT); and
• the beneficiary(s), who receive(s) trust income or principal (often the grantor during the grantor’s lifetime and the grantor’s children after the grantor’s death).

Here are several common — and sometimes costly — misconceptions about RLTs:

Myth: Using an RLT saves federal estate taxes.
Reality: Certain planning techniques available for both a will and an RLT can minimize estate taxes, but an RLT alone offers no special protection.

Myth: Probate is expensive, so avoiding it with an RLT saves you money.
Reality: Many states have simplified their probate process in the past 20 years. In addition, the probate estate is relatively small for many people. Jointly held assets (houses and cars), assets with beneficiary designations (life insurance, IRAs, retirement plans, and annuities), and assets with payable-on-death or transfer-on-death registrations (bank and brokerage accounts) already pass outside of probate and are not subject to probate fees in most states. It will cost much less than the RLT fee to settle the estate in cases where there are few individually held assets and reasonable probate fees.

Myth: An RLT makes estate settlement simpler and quicker than probate.
Reality: Once an RLT is drafted, assets must be retitled into the trust to be effective. Some estate-planning experts estimate that 50 percent of the RLTs created are never funded. In addition, RLT trustees and successor trustees have many of the same estate settlement responsibilities and headaches as executors designated in a will.

If your estate is fairly small or the majority of your assets will avoid probate, then an RLT might not be necessary. There are, however, several reasons to consider including an RLT in your estate plan:

• you live in a state with high probate fees;
• you own out-of-state real property; or
• you are concerned about maintaining privacy for spouses and heirs.

Visit MOAA’s Financial Education Center at www.moaa.org/financialcenter/estateplanning.asp for more information.

— Former Army Capt. Phil Dyer, CFP, is deputy director, Benefits Information. For additional financial counseling, MOAA members can contact Garrett Planning Network (GPN) at (866) MOAA-GPN (662-2476) or online at www.garrettplanning.com.