The last will and testament is still very popular, certainly not the only estate planning instrument available. There are many other options, some of which may be better suited for your particular needs. One of those estate planning tools that has become very popular in the last couple of decades is the revocable living trust. Living trusts have many benefits, including probate avoidance. They also provide other benefits, both before and after death – something a will simply cannot do.
How does a revocable living trust work?
Like any other trust, a revocable living trust is a written agreement between you and a trustee, who will ultimately be responsible for managing the assets you place in the trust and distributing them to your beneficiaries. The difference is, a living trust is established while you are still living, naming you as the primary trustee and beneficiary in most cases. If it is a “revocable” living trust, then you maintain the power to modify or revoke the trust at any time, as long as you are still mentally competent. A revocable living trust will become irrevocable, upon your incapacity or death.
The parties to a living trust
A living trust will have three parties to the trust agreement: the creator of the trust, the trustee, and the named beneficiaries. The trustee is the person whom you have chosen to manage your assets, in conformity with the terms of the trust agreement. Of course, the beneficiaries are those individuals you have chosen to receive the benefit of your assets. By naming yourself as the primary trustee and beneficiary, you can maintain full control of your assets during your lifetime. Upon your disability, you will have named a successor trustee to take your place, but the trust assets are still to be used for your benefit. At death, the successor trustee will administer the estate by taking care of the taxes and bills and then distribute the assets to the ultimate beneficiaries you have named in your trust agreement.
The differences between a living trust and a will
Your last will and testament, like a living trust, will set out your instructions regarding inheritance of your estate. However, a living trust allows you to avoid probate, a lengthy and costly process. Furthermore, a trust is more private than a will, which becomes public record. Probate proceedings, which include an inventory of the assets and the contact information of your beneficiaries, are also open to the public.
Additional benefits of a living trust
Unlike your last will and testament, a living trust can also include terms that allow someone to take over management of your assets in the event you become incapacitated for any reason. Thus, you will most likely avoid the need for a court appointed guardian or conservator. Another benefit is that you can specify that your assets be distributed to your beneficiaries as trusts, as opposed to immediate distribution after your death. Doing so increases protection of the inheritance from the beneficiaries' creditors or divorcing spouses.
What if I don’t have a will or a trust?
If you do not leave any instructions behind, in either a will or a trust, your property will be distributed pursuant to your state’s laws of intestate succession. Generally, that will mean that your assets will go to your spouse or your closest surviving family member, if you have no spouse. In some cases, it will mean that the surviving spouse will get only a fraction of your assets, with the remainder going to your children. Children receive the estate at age of majority - 18 in most states. There is also the chance that someone will be selected by the court to manage your estate and the distribution of your property, whom you do not trust to handle your affairs. Having a plan in place allows you to make all of these decisions for yourself, ahead of time.
If you have questions regarding living trusts, or any other estate planning needs, please contact Anderson, Dorn & Rader, Ltd., either online or by calling us at (775) 823-9455.