What is a Revocable Living Trust?
Much has been written regarding the use of “living trusts” (also known as a “revocable trust,” “inter vivos trust,” or “loving trust”) as a solution for a wide variety of problems associated with estate planning that wills cannot address. Some attorneys regularly recommend the use of such trusts, while others believe that their value has been somewhat overstated. The choice of a living trust should be made after consideration of a number of factors.
The term “living trust” is generally used to describe a trust that you create during your lifetime. A living trust can help you manage your assets or protect you should you become ill, disabled or simply challenged by the symptoms of aging. Most living trusts are written to permit you to revoke or amend them whenever you wish to do so. These trusts do not help you avoid estate tax because your power to revoke or amend them causes them to continue to be includable in your estate. These trusts do help you avoid probate, which may not always be necessary depending on the cost and complexity of probate in your estate.
A “living trust” is legally in existence during your lifetime, has a trustee who currently serves, and owns property which (generally) you have transferred to it during your lifetime. While you are living, the trustee (who may be you, although a co-trustee might also be named along with you) is generally responsible for managing the property as you direct for your benefit. Upon your death, the trustee is generally directed to either distribute the trust property to your beneficiaries, or to continue to hold it and manage it for the benefit of your beneficiaries. Like a will, a living trust can provide for the distribution of property upon your death. Unlike a will, it can also (a) provide you with a vehicle for managing your property during your lifetime, and (b) authorize the trustee to manage the property and use it for your benefit (and your family) if you should become incapacitated, thereby avoiding the appointment of a guardian for that purpose.
Advantages of a Living Trust:
- It’s a smart way to avoid probate.
- Keep more money in the family by avoiding potentially lengthy and expensive court proceedings.
- Your personal and financial matters remain private. By creating a living trust, the public doesn’t get to see what you owned, who you owed, or who will inherit your assets.
- Your affairs get handled if you’re incapacitated. Avoid going to court by appointing a trustee to take charge of your finances according to the instructions provided in your living trust.
- A living trust doesn’t change your financial affairs. A living trust lets you do whatever you want with your money – buy and sell assets, open bank accounts and make investments just like you do now. You can amend or change the trust any time, or even revoke it and pull your assets out. It remains on the shelf, ready to act if something happens to you or your spouse.
- Avoids probate in multiple states if you own real estate outside of Texas.
Disadvantages of a Living Trust:
- Time-consuming to maintain – you will need to transfer all of your property, beneficiaries, bank accounts, and other assets to the trust AND you will need to remember to acquire any new assets in the trust throughout your life in order to avoid probate.
- More expensive. Now, if you are successful in transferring your assets to your trust, then the trust will ultimately save money as it can avoid or at least significantly reduce probate costs.
Frequently Asked Questions:
What is a living trust? It’s a legal document that states who you want to manage and distribute your property if you’re unable to do so, and who receives it when you pass away. Once signed, you transfer ownership of your assets into the trust and you remain in complete control of your property. The trust property can be managed and distributed without going through the probate court.
Can I transfer property into and out of the trust while I’m alive? Yes. If you have an individual trust, you can transfer property whenever you want. If you have a shared trust, you’ll need your co-trustee’s consent if you own the property together.
Do I still need a Will if I have a living trust? Yes, because you may not have transferred your property into your trust before you pass away. A Living Trust includes a pour over will. It transfers property still in your name alone when you pass away to the trust to be distributed to your beneficiaries. It also lets you name guardians for your minor children.
Aren’t living trusts just for the wealthy? Not at all. People of all income levels can set one up to manage their finances in case they become disabled, or to provide for loved ones without going through probate court, which may be required of relatively modest estates.