Most people looking to make long-term plans have heard of revocable living trusts, but very few people really understand what they are.
A revocable living trust is a legal document that includes instructions on what to do with your assets when you die. Now, you may be thinking: isn’t that what a will does? Yes, that is exactly what a will does; However, the key difference between a will and a trust is that a trust prevents the assets of the trust from being probated (immobilized in the court system) at the time of your death; a will does not.
Revocable living trusts are not the only way to avoid probate. Joint titling of your assets or designation of beneficiaries are two other commonly used methods to avoid succession. While joint ownership and / or beneficiary designations may be appropriate in certain cases, there are other situations where having your assets in a Trust is the best course of action.
Trusts are not as complicated as many people think they are. The first step is to meet with an attorney who is experienced in writing revocable living trusts and who can explain the process to you. You will become the grantor of the trust, that is, the
Trust belongs to you and only you can make changes to your trust. You will also need to name someone as Trustee to manage the assets in your Trust. You can be your own trustee or designate someone else (a family member, friend, or corporate trustee such as a bank) to act as trustee. Finally, you will designate the beneficiaries: people or organizations that will receive your assets when you die.
This is where a Trust comes in extremely handy. For example, you may have three adult children and you may want all of your assets to pass equally to all three children after your death, and if one of your children dies before you do, you want his share to go to your children. . This can easily be accomplished with a trust, but it would not be possible to name all three children as co-owners of your assets nor would it be possible to name all three children as beneficiaries.
This is just one example of the potential benefit of using a revocable living trust to avoid probate. Revocable living trusts are also helpful in case your desired distribution method is more complicated. For example, you may want a portion of your assets to go to your grandchildren, but they may all be teenagers right now. You can set up your trust so that your grandchildren do not receive their share of the assets until they each reach the age of 25. On the other hand, you may have an adult daughter with a developmental disability who would not be able to manage her share of assets after her death. In that case, you can choose to have your share of the assets remain in the Trust’s possession after your death so that the Trustee can manage your share for you.
Situations like the two just mentioned can only be handled through a revocable living trust; they cannot be achieved through beneficiary designation or joint leasing. One last point: a trust itself is worthless unless it has been funded. Once the Trust document is drawn up according to your wishes and signed, you must transfer your assets to the Trust. This means that you will need to re-title your assets, such as real estate, stocks, and certificates of deposit in the name of your trust. (Retirement plans and IRAs should not be deposited in a trust.)
While having a revocable Living Trust can help you simplify the management of your financial affairs after your death and ensure your wishes are followed, there are many issues to consider when deciding whether a Trust is right for you. A good elder law attorney can help you with this decision.