The Benefits of Revocable Living Trusts

In their estate plans, many people now choose to set up a revocable living trust instead of relying on a stand-alone will, beneficiary designations, or joint ownership.

What Is a Revocable Living Trust?

A living trust is an estate planning tool that can be used to protect your assets and transfer your wealth to the next generation. When properly prepared and funded with your assets, it can provide many benefits for you and your loved ones.

A living trust is also referred to as a revocable living trust; that is, you can generally modify it during your lifetime. You can also continue to own and have control over the assets in your revocable living trust while you are alive and well.

How Does a Trust Work?

You must transfer assets into a trust. This is known as funding a trust. For each asset you want to transfer, you must change the title from your name to the name of the trust.

Although a trust can hold many different types of assets, there may be assets that you would NOT add to your living trust. For example, you would not place your retirement accounts or health savings accounts in a trust. Note, too, that rules and approaches may vary across states. Your estate planning professional can advise you with regard to these specifics.

You also will appoint a trustee for the trust. The trustee can be an individual or an organization. In part, they are responsible for distributing the trust assets according to your wishes. Learn more about the duties and responsibilities of a trustee.

Assets in a trust can be distributed to beneficiaries during your lifetime, when you pass away, or at some point in the future. While a will takes effect when you die, a trust becomes effective when you have it created.

The Advantages of Revocable Living Trusts for Your Heirs

In addition to offering flexibility and control, a revocable living trust can benefit your loved ones.

A living trust can:

• Avoid the time and expense of probating the assets held in your trust when you die
• Avoid multiple probates if you own real estate assets in more than one state
• Provide easier, more efficient administration of your estate by your trustee
• Prevent court interference after your death or in the event that you become unable to handle your own affairs while you are alive
• Give you and your family maximum privacy by avoiding public court processes
• Minimize emotional stress on your family
• Bring your assets together into one plan controlled by one set of instructions
• Provide for a loved one with special needs
• Enable assets to remain in the trust, protecting them from beneficiaries’ creditors, spouses, divorce proceedings, imprudent spending, and future death taxes
• Prevent the court from controlling the inheritance of minor children
• Be more difficult than a will to contest
• Provide effective prenuptial protection
• Be changed or revoked at any time while you are alive and competent
• Allow for professional asset management
• Include tax planning to reduce or eliminate state and federal estate taxes
• Let you keep maximum control
• Provide peace of mind

Is It More Expensive to Set Up a Trust Than a Will?

Setting up a well-drafted living trust may cost more initially than having just a stand-alone will prepared. One reason is that a living trust usually has more provisions because it deals with issues while you are living as well as after you pass away. A will only deals with issues after you have died.

When comparing costs, remember that the true cost of a will includes the following:

• the costs of probate when you pass on,
• a possible conservatorship or guardianship if you become incapacitated, and
• a guardianship if you leave assets to minor children.

Should I Be Aware of Any Other Disadvantages of a Revocable Living Trust?

Besides the potential extra expense of setting up a living trust, they can have a few other potential drawbacks:

• A revocable living trust generally cannot provide any asset protection for the trustmaker (e.g., from creditors) even though it can be used to provide protections for other beneficiaries.
• If you have a professional trustee, additional costs may be associated with administering the trust because the trustee will require compensation.
• Properly funding a trust can be time-intensive because you will need to transfer assets into the trust.
  
  Let’s say you acquire a new asset after initially setting up the trust. However, you forgot to update the title document to reflect the name of the trust before your death. That asset may then be subject to probate. Learn why a pour-over will is therefore required as a safeguard in such a case.

Consult With an Estate Planning Attorney

After weighing the costs and benefits, it is easy to see why so many people and professionals prefer a living trust. Reach out to a qualified estate planning attorney near you to pursue the plans that are right for your circumstances.