Question: I’ve heard about Revocable Living Trusts on TV and in books (often from a well known female financial advisor) and they seem much better than a simple Will. Are Living Trusts something that all of us should have?
There are many reasons why a Revocable Living Trust is the best vehicle for estate planning. First, its important to understand that, upon your death, every Will must be approved by the Court in order for it to be valid. There are no exceptions. This is the probate process. Your family will hire an attorney to petition the Court to prove that the Will is valid by either bringing in the witnesses to the Will or submitting their affidavits stating that all of the proper procedures were followed in executing the Will. Your heirs also must be invited to either consent to the Will or file objections. This process can be quite expensive - up to 5% of your estate in legal fees and it can take a long time. It can be more expensive and take longer if any of your relatives file objections and bring about a Will contest. Therefore, probate is often seen by many as a process that is better to avoid if possible.
Revocable Living Trusts are vehicles which can accomplish this goal. Essentially, this is an entity, created by an estate planning attorney, which will own your property. While you are alive and well, you are in total control of your assets in the same way you are now since you will be the trustee of your own Trust. However, you will also have named a trusted individual to act as your back-up trustee upon your death or should you become incapacitated. This means that, when you pass away, your back-up trustee can immediately take over and distribute your property to your beneficiaries as you have instructed in your Revocable Living Trust document. You have, in this manner, achieved the goal of avoiding probate.
There are several other important benefits to a Revocable Living Trust:
1. Should you become so incapacitated that, under normal circumstances your family would need to apply to the Court for guardianship, this may also be avoided since you have already named a back-up Trustee to handle your affairs if you are no longer able to do so;
2. Without a Trust, your family must typically have probate proceedings in each and every state where you own property, even a condo. This is called ancillary probate. With a Trust, since you have your back-up Trustee, ancillary probate is no longer necessary;
3. Whereas probate gives your relatives a forum to easily file objections to your Will, contesting Trusts, which are private in nature, are few and far between. In fact, in the many years that I have been preparing Living Trusts, only one was contested and the action was abandoned half way through.
Now that we have the basic understand a Revocable Living Trust, the question as to whether everyone should have one may be answered. The answer is almost everyone. The preparation of the Revocable Living Trust often takes many legal hours as the document itself creates an entire new entity and can often run thirty pages or more. As you may expect, the legal fees are generally much higher than those for a Will. This is what often stops people from obtaining a Trust even if they otherwise need it. However, probate fees far exceed the cost of a Trust so that if any of the benefits listed above apply to you and your family, the Living Trust would still be your best choice. Only you can judge whether it is better for you to pay more now or your family to pay much more later.
You may well have noticed that the "Fund Your Living Trust," has not yet even been mentioned. This is because if there is nothing else that our readers take away from this, funding your Trust is the most important. All the rest has just been leading up to this. As noted above, the Trust is created to own your property. It will only work for the property that you put into it. I have had several instances over the past few years where clients have come in whose parents had prepared a Living Trust but neglected to transfer in any of their assets. What did this mean? It means that they had the right idea about creating a Living Trust but their family must go through probate anyway. Neither will their families benefit from any of the other advantages of a Trust. So whether you are contemplating having a Living Trust prepared or you already have your Living Trust in place, please remember, "Fund your Living Trust!"