So, you’re finally ready to get serious about your estate planning, and one of your close friends suggests that you look into getting a living trust. The problem is that you haven’t really heard all that much about what a trust can accomplish for someone in your situation, so the idea seems a little odd. After all, aren’t trusts just for wealthy people? How could you possibly benefit from some complex legal arrangement? As it turns out, trusts have come a long way since those days when they were used almost exclusively by the world’s richest families. These days, revocable trusts – often referred to as living trusts – can offer a whole host of advantages for individuals and families who include them within their estate plans. We’ll take a look at three truly unbeatable benefits you can enjoy by creating your own living trust.
What is a Revocable Trust?
The revocable trust is a legal relationship created when a grantor transfers ownership and control over his assets to another person or entity. That party serves as the trustee of the trust, and holds and manages those assets for the benefit of certain named beneficiaries. Obviously, this relationship bears some striking similarities to the irrevocable trust structure, but it is important to understand the differences that exist if you want to fully grasp the benefits that these trusts can provide.
Unlike irrevocable trusts, living trusts can be revoked at any time by the grantor. New trustees can be named, new beneficiaries can be added, and the terms of the trust can be changed. More importantly, the grantor can also serve as the trustee and manage the trust for his own benefit – effectively making him the grantor, trustee, and beneficiary. It is common, of course, for grantors to name successor trustees to take over control of the trust in the event of incapacitation or death, and to name beneficiaries who receive the remainder of the trust at that point.
To be effective, trusts must be properly funded. That means transferring certain assets into the trust. These assets can include everything from real property to securities, bank accounts, and more. While many trust creators sometimes demonstrate reluctance when it comes to funding irrevocable trusts – mainly because they fear giving up total control over assets, most people who create revocable trusts have far fewer reservations. After all, even though those assets are no longer technically owned by the grantor, he or she still exercises some level of control over them and can reap the benefits of any income they might generate.
What Advantages Can They Provide?
The full range of benefits provided by living trusts is far too diverse and complex to list in its entirety here, but there are three primary advantages that every revocable trust can offer:
- A revocable trust can help you to avoid probate. Because a trust can be set up to distribute assets upon the grantor’s death, it effectively serves the same purpose as a will. The only difference is that the trust does not require the intervention of a probate court, since the assets are owned by the trust and distributed in accordance with its terms. There are obvious benefits to this arrangement, including the avoidance of probate court fees, attorneys’ expenses, and the time involved in the probate process.
Trusts can also help grantors to avoid probate in instances where property is owned in multiple states. By placing all of those properties in trust, the decedent’s heirs can avoid the lengthy and costly probate processes that might be used in any of those other jurisdictions.
- Living trusts are less likely to face legal challenge after the grantor passes away. Unlike wills, which only go into effect when the testator dies, living trusts become active as soon as they are created and signed. As a result, trusts are much more difficult to contest, since any challenge would need to provide evidence that the trust’s creator was incompetent or influenced at several different points in the process: during the trust creation, at signing, during the funding process, and so on. Obviously, that is a particularly high bar to meet for any challenger.
- Living trusts can be used to provide added protection against incapacity. When a grantor also serves as trustee, the naming of a successor trustee ensures that there is someone to step in and take control of the trust’s management in the event of any incapacitation. That can help to ensure that there is no need for guardianship proceedings, and provides the grantor with the peace of mind that comes from knowing that his preferred agent will be looking after the trust assets.
Are Revocable Trusts the Best Option for Everyone?
With benefits like that, it is only natural to wonder whether everyone should have a revocable trust. After all, who doesn’t want to avoid probate, guard against will contestation, and avoid issues related to incapacity? Well, the reality is that these trusts may not be for everyone. Each person has his or her own unique issues to manage, and estate plans have to be carefully crafted to meet individual needs.
For example, some people will benefit more from the type of irrevocable trust typically used for things like Medicaid planning. Others will enjoy the benefits of both revocable and irrevocable trusts. Still others may need only a will and the necessary powers of attorney for financial and health care concerns. There is no one-size-fits-all solution out there, and that’s why it is so important to seek guidance from a competent estate planning attorney.
The estate planning experts at Frank & Kraft, Attorneys at Law, have the expertise you need to ensure that your decision about whether to use revocable trusts in your comprehensive planning efforts is the right one for you. We’ll work with you to evaluate the planning challenges you need to overcome, and determine the best course of action to enable you to reap the most benefits from your strategy. If you’d like to learn more about how revocable trusts may be able to help you reach your estate planning goals, contact us online or give us a call today at (317) 684-1100.