Revocable Living Trust
What is a Revocable Living Trust and how does it differ from a Will?
A living trust is a trust created during a person’s lifetime. It is a essentially a contract between the “Grantor” (the person contributing the assets) and the “Trustee”(the person or entity that is going to manage the assets). Often the Grantor and Trustee are one in the same. During your lifetime, you transfer your assets to your trust. This is called “funding.” The person or entity named in the trust as the successor trustee oversees the administration of the trust after the Grantor dies. The decedent’s bills are paid then the assets in the trust are distributed to the persons named, and in the manner specified, by the trust.
Like a living trust, you create a Will during your lifetime. Your Will contains provisions as to who will inherit your assets and who will be in charge of administering your estate (the executor). Unlike a living trust, however, a Will has no legal effect until your death. Assets passing pursuant to a Will require probate administration. Moreover, they cannot alone provide a plan for incapacity.
What are the advantages of having a Revocable Living Trust?
Avoid probate. During your life, you keep your Revocable Trust “funded” by transferring title to your assets from you personally to your trust. Assets funded to your trust are not subject to probate proceedings although a trust administration is still required upon your death. Generally, administration costs are greatly reduced by the avoidance of statutory attorney and executor fees required of a probate estate. An additional benefit is that generally, the time it takes to administer your estate is reduced and your heirs can receive their inheritance in a timelier manner.
Privacy. Unlike a will, which has to be filed as a public record in the probate court, the trust instrument remains a private document even after your death. Generally, only your beneficiaries and heirs are entitled to a copy.
Avoid the potential of a guardianship or conservatorship. A well drafted Revocable Living Trust will contain provisions naming someone of your choosing to step into your shoes and take your place if you are unable to handle your affairs. In addition, you can set up your trust to specify who has the power to determine if you are incapacitated. Many individuals often leave the determination up to their doctor. A better choice for many individuals is to let a small group of trusted friends or family make the decision. This is called a disability panel.
Underage heirs. If your heirs are too young or immature to handle the money you will leave them when you die, you can use a trust to determine when they will receive the money and how much they will receive each time. For example, you can leave instructions that say, when my child reaches 30, he gets 1/3 of the property. When he reaches 35, he gets another 2/3. And when he reaches 40, he would receive the final 1/3, or the remaining balance of the estate. You can also create a lifetime trust for your child which can protect your child’s inheritance from creditors and predators, including potential ex-spouses.
Second marriage. In the context of a second marriage, the trust is an excellent way to protect both the surviving spouse and the children from your previous marriage.
Out-of-state property. If you have real property located in another state the trust will eliminate the need for an ancillary probate in the other state.