Revocable Living Trust
Here are the main reasons why a revocable living trust could benefit you.
What is a revocable living trust and how is it different from a last will?
A revocable living trust (sometimes called an “inter vivos” trust) is a written legal document through which your assets are placed into a trust for your benefit during your lifetime and then transferred to designated beneficiaries at your death by your chosen representative, called a “successor trustee.” Generally, during the duration of the trust you serve as your own trustee, until you are unable to continue or until your death.
Compared to a will, a will is a written legal document with a plan of distribution of your assets upon your death. Your executor, as named in the will, oversees this probate process.
1. A Living Trust Avoids Probate
One of the first benefits of a living trust is that it avoids probate. With a valid will, your estate will go through probate, the court proceedings through which your assets are distributed according to your wishes by the executor.
A living trust, on the other hand, does not go through probate, which often means a faster distribution of assets to your heir. Your successor trustee will pay your debts and distribute your assets according to your instructions.
2. A Living Trust May Save You Money
Remember this really all depends on your financial situation. At first, drafting a revocable living trust will likely cost more than drafting a will as it is a more complex legal document. Moreover, you must also “fund the trust” by transferring your assets such as bank accounts, stocks, and bond accounts and certificates to the trust through separate paperwork; simply writing up a revocable living trust does not actually “fund the trust.”
Other procedures involved in an estate plan with a revocable living trust will also include creating a “pour-over will” that will provide for the distribution of any assets acquired after the creation of the living trust but before your death or any assets inadvertently excluded.
Note that the pour-over will, just like any will, will have to go through probate.
While a will costs less to draft, a revocable living trust can save your estate money at the time of your death as the distribution of assets in the trust will not go through probate; court costs for probating your will are taken from estate, although note that for a simple, uncontested will, costs are often nominal.
Regarding contests, revocable living trusts will likely hold up better in the event that someone comes forward contesting the distribution of your assets; accordingly, court costs to cover any will contests may also need to be considered.
As far as savings of income and estate taxes, there is often no substantial difference between revocable living trusts and wills.
Note that for people with simple estate plans and for young married couples with no children or significant assets, revocable living trusts are probably not financially beneficial.
One big difference between the two legal documents is the level of privacy offered with a revocable living trust. As a revocable living trust is not made public upon your death, so, your estate will be distributed in private. A will, on the hand, is public record and so all transactions will be public as well.
Another difference is the handling of out-of-state property you own upon your death. With a will, that property will have to go through probate in its own state; a living trust can help you avoid probate.
What other benefits does a revocable living trust provide?
Beyond the top three main benefits, another benefit is that a living trust is written so that your trustee can automatically jump into the driver’s seat if you become ill or incapacitated. However, if a trust is not needed, be sure to have a statutory durable power of attorney to avoid the court appointing someone to oversee your financial affairs and who will have to report to the court for approval of expense, sales of property, etc. This is done through a conservatorship.
With a revocable living trust, however, your handpicked successor trustee can manage your affairs without court intervention, and since the trust is revocable, if you dispute your incapacity, you can retain control yourself.
While a living trust makes sense for some people, wills are just fine for others. A general rule among tax planners is that the larger the value of the estate, the greater need there is for a living trust—although even this is not foolproof.