The purpose of this article is to answer some basic questions about revocable living trust instruments. A revocable living trust is a written document that sets forth your wishes as to how your assets will be managed during your lifetime and distributed after you pass away. Assets can include, but are not limited to, most types of bank accounts and investments, real estate, and valuable possessions.
What Is The Purpose Of A Revocable Living Trust?
There are several benefits to having a revocable living trust:
- You may control who receives your assets. A properly funded trust is an effective means of distributing your assets without involving the probate court. A trust is similar to a will in that you may dictate who will receive your assets, but a trust is even more versatile than a will because you may dictate when you want the beneficiaries to receive those assets. For example, suppose a couple has three children, one that is 25 years old, another 22 years old, and another 17 years old. With a trust, that couple may indicate that they want each of the children to immediately receive their share of assets upon the death of the second spouse as long as that child is at least 18 years of age. But if they don’t want to take the risk that each beneficiary will squander their share of assets immediately after receiving them, they could stretch out the distribution; for example, they can state that they want their children to receive 50% of their share of assets at age 25 and the other 50% at the age of 30. A trust gives you, as the grantor, great control over who, how much, and when your beneficiaries are to receive their share of your assets.
- You may provide for a trusted friend, family member or professional fiduciary to help you manage the trust if you become incapacitated. A trust is not only used to designate the recipient of assets upon the death of the grantor. A trust may also designate a successor trustee to manage those assets according to the wishes set forth in the trust document until you are no longer incapacitated.
- You may retain more privacy in trust administration than in the probate process. When admitted to probate, a will is a public document, open for all to scrutinize and possibly contest. In contrast, a living trust is a private document, is generally more difficult to challenge, and in most situations, avoids the public probate process altogether.
- You may speed up the process of distribution. This article is not meant to discuss the role of a will in estate planning, nor the details of the probate process; these will be handled as separate topics. For now, you should understand that the probate process, during which the court supervises the distribution of your estate to some extent, can take several months (or longer) to complete. Having a properly funded living trust may avoid probate and its resulting delays entirely. Depending on the conditions you set in your trust, your beneficiaries may gain access to their share of assets much faster.
- You could save thousands of dollars. The probate process, apart from being time-consuming, can be costly. It has been our firm’s experience that the simplest, least expensive probate costs more than the creation of a trust that may have avoided the probate process entirely. This means more assets going to your intended beneficiaries and less getting consumed in legal fees and court costs.
- You can change your mind. Having a revocable living trust means that during your lifetime, as both grantor and trustee, you would control the assets in the trust the same way as if you had no trust at all. You can add to or withdraw assets owned by the trust as you see fit. You can also amend the trust if you want to change the distribution provisions or nomination of your successor trustee. You could even revoke the trust altogether if your circumstances dictate a different course of action.
What Type Of Decisions Need To Be Made For The Revocable Living Trust?
- Who are your Successor Trustees? One decision you will make in a revocable living trust is who you choose to take over management of the trust if you become disabled or when you pass away. The Successor Trustee should be someone you trust to manage your assets for your benefit during your lifetime and to distribute the trust assets to your beneficiaries in accordance with your wishes after you die.
- Who are your beneficiaries? You can choose to leave your estate to one or more individuals. You can also leave assets to charitable organizations and educational institutions. Most often, the primary beneficiaries are family members or friends of the grantor(s).
- When and how much to give your beneficiaries? Beneficiaries may be given specific assets, like a house or an art collection, or they can be given specific monetary amounts or percentages of the total trust estate. You can decide at what age or under what conditions your beneficiaries are to receive their share of assets. Some of the common ages for distribution are 18, 21, 25, or 30 years old, although if you create a trust you would have great flexibility on what ages you want you beneficiaries to receive trust assets.
What Are The Consequences Of Not Having A Revocable Living Trust?
- You might leave the decision of the distribution of your assets with the state. Without a valid will or trust, the assets of a deceased individual would pass to whomever is entitled to inherit the assets under the state’s laws of intestacy. This may or may not be consistent with your intentions.
- You may trigger the probate process. Having a properly funded revocable living trust will help to avoid the probate process. Although going through a probate process is not the end of the world, it often creates more work for the person administering your estate and is traditionally more costly than having planned in advance to avoid probate entirely.
While you may be tempted to avoid the initial cost of creating a revocable living trust, you should not overlook the many benefits of having such a document for you and for your loved ones. Establishing a living trust as part of your estate plan now may save time, money, and headache down the road. Contact us today if you want to know whether a living revocable trust would be right for you.