A will is most people’s first choice for transferring an estate to heirs. However, it isn’t the only option. The revocable living trust, among other estate planning strategies, is gaining popularity, particularly among baby boomers.
Living trusts may provide benefits both before and after death and avoid probate (the legal process of determining whether a will is legitimate).
Your circumstances will determine if a living revocable trust is appropriate for you. While you should always consult with a knowledgeable attorney and a personal financial adviser as part of your estate planning, here are some things to keep in mind about living trusts:
What is a revocable living trust, and how does it work?
A revocable living trust is a written arrangement that names someone to manage your property while you’re still alive. It’s termed a living trust since it’s created while you’re still alive. It’s “revocable” because you can change or dissolve the trust for any reason as long as you’re mentally competent. A living trust usually becomes irrevocable (i.e., it cannot be modified).
A trust comprises three parties: the creator, the trustee or trustees who agree to manage your assets according to the trust’s conditions, and the beneficiaries.
You’ll probably want to appoint yourself and your spouse as trustees because you want complete control of the property while you’re alive. As a trustee, you will have full control over your assets, including the ability to sell, trade, invest, and do whatever you choose with them.
What is the difference between a will and a living trust?
Your inheritance instructions are contained in both a will and a living trust, indicating who gets what, when they get it, and how.
“For persons worried about privacy and avoiding probate, a trust is generally favored,” says attorney Thomas J. Bogar of Cheltenham, Pa. Unless a trustee or beneficiary requests that the court approve the accounts, a living trust will remain private. The public has access to probate records at all times.
While trusts have their place in particular situations, wills are sufficient for most persons with modest estates, and they are usually less difficult and cost less than trust.
What if I don’t have access to either?
If you don’t give valid estate instructions, your property will usually go to your spouse or closest heirs, which may not be what you want. In addition, the state could choose someone you don’t trust to administer your property distribution or be the legal guardian of your minor children.
What can you do with a revocable living trust, and what can’t you do with one?
A living trust can give you the peace of mind that comes with knowing that your assets and heirs will be secured if you become unable to manage your finances on your own. It avoids the necessity for your estate to go through probate court before being distributed to your heirs. A trust can also replace powers of attorney if properly worded.
Your trust can be set up so that your assets are distributed to your beneficiaries immediately upon your death, or it can be set up so that they are distributed over time and in the proportions you choose. Your attorney can assist you by inserting tax-saving clauses in your will that may help you save money on state and federal estate taxes.
A trust will not be able to shield you against an angry heir, for example. According to Santa Monica, Calif., attorney Jeff Condon, “a living trust can handle some of the most prevalent family problems that may emerge in the inheritance area.” “However, if you remove someone as a beneficiary from a living trust, he or she can challenge the trust in the same way that a will can be challenged.”
What are the trustees’ names?
Any mentally competent adult can name a trustee. “In most cases, you’ll identify yourself and your spouse as trustees,” Condon explains. “You want complete control of the property while still living.” Your co-trustee or successor trustee will manage your property if you become too unwell or disabled.
According to Condon, your children would be named as successor trustees. “If you’re not sure your children will transfer the assets according to your wishes, choose a professional fiduciary to serve as your successor trustee. A bank’s trust department, a professional trust business, or a private fiduciary could all be examples.”
Is it necessary for me to invest a large sum of money into a living trust at the start?
“Funding a living trust when created isn’t necessary except for a small amount,” explains Bogar. “Your trust can be funded with as little as a $1 or as much as all of your assets. You can even direct that your trust be funded only after you die in your will. Depending on your needs and worries, each option has advantages.”
Will adding or removing property or investments need a lot of extra labor and cost in a living trust?
Condon answers, “No.” “When your assets change, you don’t need to consult your lawyer.”
Is it necessary to hire an attorney to draught a living trust?
“Yes,” Bogar confirms. “I’ve heard horror stories about trusts that were badly written. You don’t want to practice medicine on your own, and as a result, you don’t want to be your attorney.”
Be wary of living trust kits that appear to be tailored paperwork created by an attorney but are generic or internet.
What is the expense of establishing a living trust?
Depending on the attorney engaged, the complexity and amount of the assets, and the geographic area, the price could be all over. The charge could be as low as a few hundred dollars, but it usually ranges from several thousand to several thousand dollars.
Is a revocable living trust the best option for me?
Experts agree that it is not suitable for everyone, and you should assess the benefits and drawbacks. It may not be worth it for uncomplicated estates with little assets and investments because setting up a trust is usually more expensive than writing a will. A knowledgeable financial adviser can assist you in making your decision.