Do You Need a Revocable Living Trust?
What is a Living Trust?
Lawyers and financial planners often talk about revocable living trusts, but what are they and do you need one? A revocable living trust is a trust which is created by a principal (the person or group putting assets into the trust) and is funded immediately. Some trusts are not funded until someone dies. For example, some trusts are created to hold life insurance proceeds for the care of children or pets but are not in existence until after the principal dies and the proceeds are available. A living trust is one that is created and managed by the principal while s/he is alive.
What is “Revocable”?
A revocable living trust can be terminated or changed at any time by the principal. The real benefit to this type of trust is in providing the principal with the power to add or remove assets from the trust. The principal maintains control of the trust until he dies.
Benefits of a Revocable Living Trust
A successor trustee can be named to take over control of the trust in the event that the principal is longer physically or mentally able to perform the duties of the trustee. This provides a seamless transfer of assets from the principal to the beneficiaries designated in the trust documents.
The transfer of assets does not have to go through a court proceeding so the estate saves the time and expense of a court proceeding. The documents also remain private versus court documents which are public. There are also tax advantages to preserving and gifting assets through a trust rather than through other estate planning documents.
The (Five) Benefits of a Revocable Trust
Trusts are an important part of estate plans large and small. Unlike a will, a trust allows a person to manage and distribute assets in life, as well as in death. A recent article discusses why everyone needs a revocable living trust, and what the benefits of these trusts are.
- Probate Avoidance
Many people utilize estate planning in order to avoid the process of probate. Probate is the court-supervised disposition of a person’s assets in accordance with his or her will. Many people wish to avoid probate because it is time consuming and expensive. Money transferred through trusts is not subject to probate.
It’s about three to five thousand dollars to go through probate, here in Arizona, and about 9 months to about 18 months. With a trust based plan that is properly funded, we can avoid the probate process.
- To Care for Young Children
Most people would agree that a young child is not responsible enough to handle receiving unfettered access to a large amount of money. Even some young adults should not receive their entire inheritance all at once. By transferring inheritance via a trust rather than a will, the decedent can dictate at what ages the beneficiary will receive distributions.
(Photo credit: 401(K) 2013)
- To Manage Assets in the Event of Incapacity
Because a person can create a trust that operates during his or her lifetime, this trust can be designed to manage and distribute assets, as necessary, during the trust creator’s time of incapacity. Not only does this provide for the financial protection of the trust creator, but it also ensures that a person of the trust creator’s choosing is managing his or her assets in his or her place.
More About Revocable Living Trusts
If you have assets properly funded into a revocable living trust, you and your successor trustees takes care of the management and investment of the trust assets. This means you, as the current trustee; your successor trustee if you are deemed mentally incapacitated; or your administrative trustee after you die; have legal authority to work with the assets in your trust.
Assets that are not funded in your revocable living trust and are owned in your name or in joint names cannot be legally managed by your trustee. As a result, you need to name a power of attorney to handle the investment and management of all assets not held in the name of your trust.
Hire an experienced attorney when you go to prepare revocable living trust. Make sure the process is understood. Your lawyer should be able to explain everything in detail.