Even estate planning seems to go through stages and fads with discussion of new techniques making the cocktail party circuit and the “free” lunch seminars for discussion. One popular topic these days is the use of Revocable Living Trusts. Before you consider rushing in to visit your estate planner to “get one of these” you might want to understand the basics of it and see why it is not a “one size fits all” tool for everyone.
What A Revocable Living Trust IS:
- The Trust is your alter ego. At any time, you can easily add, remove, buy or sell Trust property at any time. Further, the Trust is “revocable” — you can change or end the Trust at any time.
- A Revocable Living Trust allows you to avoid probate (and the Courts) during periods of disability and upon death. Probate is avoided because a revocable trust is a separate legal entity, although you, as the creator of the trust, retain control over the assets of the trust during your lifetime and while you are able.
- Assets titled in the name of the Trust are transferable at all times, and probate is avoided. Thus, the management and administration of the Trust’s assets is not disrupted by the deceased’s death or disability.
- In order to create and effectuate a Revocable Living Trust, not only must the trust documents be executed but your property must be transferred to your trust. This extremely important step is the one that fails to get completed – thereby defeating the purpose of the Trust altogether.
What A Revocable Living Trust Is NOT:
- A Revocable Living Trust does not avoid estate taxes. Specific provisions must be included in a Revocable Living Trust (or in a Will) to reduce estate taxes.
- A Revocable Living Trust is not a substitute for a Will. You still need a Will. This type of Will is called a Pour-over Will and is used to make tax elections, appoint a Personal Representative, appoint a guardian for your minor children, and transfer assets you forget to title in the name of your Revocable Living Trust to your Trust.
There are plenty of good reasons to use a revocable living trust:
- avoid or minimize the costs of Probate and tying up assets during Probate;
- to possibly avoid will contests and keep the disposition of your assets private since your will becomes a matter of public record when filed for the opening of Probate which your trust is generally not;
- provide for immediate management of your financial affairs by a fiduciary selected by you in the event of your disability. If something happens to you, your successor Trustee steps in “your shoes” and continues managing the Trust as long as necessary. If you and your spouse are Co-Trustees, or if your spouse is successor Trustee, either can act or instantly take control if the other becomes disabled or dies.
However, everybody does not need a Revocable Living Trust- some people do not feel comfortable with the concept of a trust, and no one should do anything that will make them lose sleep at night. Second, some people have a small enough (or simple enough) estate that probate may not concern them or their heirs.
Generally speaking, the Revocable Living Trust is an estate planning tool which should be considered only after careful discussion with your attorney about whether it is appropriate for you.
The next time someone tells you “you gotta get one” ask them why they needed one and whether they actually deeded their house over to the Trust and changed all of the names and signatures on their bank accounts. Don’t be surprised if they can’t give you a good answer!