Estate Planning: What is a Revocable Living Trust?Submitted by Mission Financial Planning on January 12th, 2021
There are many types of trusts, and just as many ways to use them. Most commonly, they are used to control (or allow for someone to control) assets after a person dies. They can also be used to shelter money from estate taxes, avoid probate, segregate money for special uses and needs, and to protect money from creditors, lawsuits and divorce.
Let’s talk about the most common type, a Revocable Living Trust. This is a legal document frequently included in estate planning documents along with a Will. The Trust is written to designate who controls your finances; while you are living it’s typically you. While you are alive, the Living Trust should be almost invisible as you manage your affairs. Initially, you’ll title your bank accounts, investments and property in the name of the Trust, but functionally you and the trust operate as one entity. Within the Trust document you will designate who would handle your affairs if you couldn’t – usually through disability or death. Maybe the first person in line to handle your affairs in your absence would be your spouse. Next in line could be siblings, adult children or a corporate trustee, like a bank or trust company.
The biggest benefit of a Revocable Living Trust is that assets you title in the name of the Trust avoid probate when you die.
What is probate?
When someone dies, their assets need to pass to the rightful next owner. The process of going through probate proves that your Will is valid, your instructions regarding the distribution of your assets are followed and taxes are paid.
What’s so bad about probate? The probate process is slow, it can be expensive (executor fees, attorneys’ fees, court costs, appraisal fees) and it’s not private – debts, assets, and distributions are in the public record for anyone to lookup.
How can I avoid probate?
You can avoid probate by having co-owners or beneficiaries on your accounts or property, or by owning them in a Revocable Living Trust. A Will takes care of a lot of things, but it does not solve the probate problem.
There are a few states that make probate so easy that estate attorneys don’t feel the need for a trust; we recommend you work with state-specific estate attorneys when possible so they understand the nuances of your state. Click here to download a list of questions to ask when looking for an estate attorney.
Trusts can save significant time and money in the event of a disability or death. They allow the smooth transition of the management of your finances without going through the courts.
If you already have a Revocable Living Trust it’s important to review it regularly to
- be sure the people you named to be in charge are still people you would pick today.
- be sure you still want your money to go to the same people or places as you did back when you wrote your documents, and
- be sure rule changes don’t necessitate the need to change language in your legal documents.
We can help with this.