As estate planners, we are frequently asked what the advantages are of having a revocable living trust compared to a will-based estate plan. There is a misconception that revocable living trusts are only for the very wealthy. These days, whether a revocable trust or will is right for you really depends on what your unique goals are for your final wishes and for your loved ones.
Because a revocable living trust is created and effective during your lifetime, as opposed to a will which becomes effective at your death, there are things we can accomplish in a revocable trust that we cannot with a will. The big advantage is avoiding probate. Assets that you put in your trust do not go through the probate process at your death. Other advantages, beyond avoiding probate, include the ability to plan for incapacity, protect minor children or beneficiaries with disabilities, maintain privacy, accommodate blended family dynamics, and include more advanced estate and gift tax planning. Additionally, it can be amended or revoked at any time during your lifetime.
A revocable living trust is a will substitute that takes effect during your lifetime. It provides clear instructions for how your assets should be managed if you become incapacitated and how they should be distributed after your death. Think of it as an instruction manual for the assets you place into it. When you create and fund your trust, you’re known as the grantor (or settlor), and you typically serve as the initial trustee, meaning you still manage your own assets. Funding the trust means retitling or renaming assets into the name of your trust. Importantly, creating a revocable living trust doesn’t change how you use or control your assets during your lifetime.
One main advantage to a revocable living trust is avoiding probate. If you do not want your estate to go through the court process of probate to transfer your assets to your heirs or beneficiaries, a revocable trust accomplishes that. For example, if you own real property that is not owned in joint tenancy when you die, then your estate would require probate unless your property is owned by a revocable living trust. And, if you own real property in another state like a cabin, vacant land, or mineral rights then you can avoid an additional probate in that other state, or ancillary probate, by putting those properties in your trust. If funded correctly, administering a trust can go smoother and faster than the traditional probate process.
A revocable trust can be a powerful tool in planning for incapacity or disability. The acting trustee of your trust will always have legal authority to manage the assets you put into your trust. Your trust document should list backup trustees, or successor trustees. When or if you ever get to a point during which you are unable to manage things for yourself and are incapacitated, then your successor trustee steps into the trustee role and manages your assets for your benefit. With a trustee having the authority to manage things for you, you can avoid the risk of banks, financial institutions, or title companies not accepting a general durable power of attorney. This can make a very difficult time in life less stressful for loved ones and help avoid conservatorship.
We can also draft protections for minor children and other loved ones in a revocable trust, including a relative with disabilities. A successor trustee can be given the authority to manage assets for you and for the care of minor children if you are incapacitated. Additionally, a successor trustee can manage an inheritance for minor children after your death. That could look like a trustee managing a child’s inheritance until a certain age, staggering distributions to heirs over time so they don’t have access to a large sum of money at a young age. If you want to provide for a loved one with disabilities after your death and they are receiving benefits that inheriting a large sum would disqualify them for those benefits, then a special needs trust can be set up for that beneficiary so they avoid losing benefits and the inheritance can supplement their quality of life.
The probate process is not completely private. If you have a will, it must be filed with the court after you die. Some probate records can be accessed by the public. Trusts are not registered with the state and cannot be accessed by the public, so information about beneficiaries and how much or which assets they are inheriting are kept private through trust administration.
Just like it sounds, a grantor can revoke a revocable living trust at any time. It can be modified, or amended, which is helpful as life happens and things change over time the trust can be changed to meet current needs. This also streamlines changes in your estate plan—if the trust is property funded, amending the trust updates the ‘instructions’ for all the assets in your trust at one time reducing the need to update a patchwork of beneficiary designations.
For spouses, revocable trusts can help separate assets. This can be helpful for a few reasons like estate tax minimization, protecting assets in a blended family after the death of the first spouse, avoid accidentally disinheriting step-children, creditor protections, or maintaining separate property obtained by one spouse prior to marriage.
If you are interested in accomplishing any of these goals in your estate plan, reach out to our team at Family Law Group today to set up a meeting with an estate planning attorney. There are many things to consider when deciding which type of estate plan is best for you, and at Family Law Group we tailor each plan to meet your unique goals. Contact us to set up a consult with an experienced probate attorney at (719) 687-2328 or email us at info@familylawgroup.us.
