Revocable living trusts have become a popular alternative to the traditional Last Will and Testament as a more efficient and cost effective way to pass property on to your loved ones when you die.
Q: What Is the Difference Between a Revocable Living Trust and a Will?
To many, the revocable living trust looks a lot like a will because it includes the details and instructions for how you want your estate to be handled at your death, and it appoints a successor who will be in charge of your estate upon your death. But unlike a will, a properly funded trust provides the following benefits:
Flexibility and Control – As the “Trustor,” “Trustee” and the lifetime “Beneficiary” of your own trust, you retain full and complete control over all your assets during your lifetime. Upon your death, the assets in the trust are managed and distributed according to your desires written in the trust document. Each family has its own particular needs, and your trust should be designed and customized to meet those needs. The revocable living trust gives you control over the assets you leave to your minor children, grandchildren or other beneficiaries who you might not want to receive their inheritance right away (including special needs beneficiaries or financially irresponsible beneficiaries).
Avoidance of Probate – Assets titled in the name of the revocable living trust at the date of death are not subject to probate administration. This avoids thousands of dollars in executor fees and attorneys’ fees, not to mention a possible one or two-year delay for your family while the estate assets are tied up in probate.
Planning for Incapacity – If you become disabled or simply desire to be free of the worries of day-to-day asset management, the revocable living trust designates a “Successor Trustee” who can step in to manage your financial affairs without the necessity of going to court to have a conservator appointed (which is, again, a very costly, public and slow process).
Continuity of Asset Management Upon Death – Upon your death (or the death of the surviving spouse), the Successor Trustee automatically steps in and begins to manage the estate without the delay or “red tape” associated with probated estates.
Privacy – Revocable living trusts offer privacy as to who inherits the estate, when they receive it and how much they receive.
No. Many individuals are under the impression that their will alone is sufficient to avoid probate. Unfortunately, a will is simply an expression of your wishes and must go through some kind of court process before the assets can be distributed to the heirs. The reason probate is needed is because since the owner of the property is deceased, a formal legal proceeding is required to remove the decedent’s name from the property and title the asset in the new owner’s name. Depending on the complexity of your estate and whether any disputes or claims arise, this process can take years.
Q: What Is a Revocable Living Trust?
A revocable living trust is a legal document that holds title or ownership to your property and assets. When you create a revocable living trust you transfer ownership of your assets to the trust (a process referred to as “funding” the trust). Like a will, the trust is “revocable,” meaning that you can modify or eliminate it at any time. A revocable living trust is created by a written document which appoints a “Trustee” (typically you during your lifetime) to own and manage the trust assets and which gives detailed instructions on how the property is to be managed and eventually distributed.
Q: Do I Lose Control of My Assets Transferred to the Trust?
No! The revocable living trust is a legal document that allows you, as the Trustee, unlimited access to your assets during your lifetime. Furthermore, since the trust is “revocable,” you can transfer your assets into and out of the trust as you deem appropriate.
Q: How Does A Revocable Living Trust Work?
First, you must sign a formal, written trust agreement. Then, for the trust to be effective it has to own title to most all of your property or assets (certain assets, such as retirement accounts, are oftentimes not included in your trust). This process is called “funding” your trust, which is the process of transferring title of your accounts or property to the name of the trust. For example, accounts previously titled in the name of John and Mary Smith would, after creating their trust, be held as “John and Mary Smith, Trustees of the Smith Family Trust dated mm/dd/yy.”
When the assets are in the name of the trust there is no need for probate since the estate is now controlled by the trustee of the trust. After you (or you and your spouse) pass away, the trust identifies the person who will act as successor trustee. The trust gives that person the right to manage all assets on your behalf as you have instructed in the trust document.
Q: Who Is Involved In My Revocable Living Trust?
Four parties are involved in the creation of a revocable living trust:
Grantor or Trustor: This is the person who sets up the trust. The grantor has many names such as the creator, settlor or trustor. As the grantor, you have full control to manage or change the trust at any time.
Trustee: The trustee is the person who will manage the assets in the trust. Again, this will most likely be you while you are alive and well. When a trust is initially created, the trustees are usually the same individuals as the grantors. For married couples, usually the husband and the wife both act as co-trustees. You do not have to be your own trustee if you do not want to or do not feel you are able. You can name a child or friend or even an institution to manage your affairs while you are alive.
Beneficiaries: The trust beneficiaries are the ones for whose benefit the trust was created. During your lifetime, you are the beneficiary. Typically, only upon your death (and the death of your spouse if you are married) do your children, loved ones or specified charities become beneficiaries of the trust assets, and while you are living they have no legal interest in the trust estate. The grantor has the sole power to change the beneficiaries during his or her lifetime. Once the grantor dies, the beneficiaries cannot be changed.
Successor Trustee: This is the person (or institution) who will manage your assets for you when you die or if you should become incapacitated. This person will have the right to manage your affairs without the need for any probate court. The successor trustee will immediately have the same powers that you as the trustee had to buy, sell, borrow, or transfer the assets inside the trust. More importantly, the successor trustee has the right to distribute the trust’s assets according to your instructions in the trust. This immediate control can allow your estate to be transferred to your children or loved ones right away avoiding the time delay of probate. Fortunately for you and for the protection of your heirs, the successor trustee does not have the legal right to change your trust. The trust becomes irrevocable or unchangeable after the death or incapacity of the grantor. However, the successor trustee does have the right to manage the assets in the estate, but must do so for the benefit of the beneficiaries.
Q: Who Should Serve As Successor Trustee?
In Arizona, any competent adult can be the successor trustee, or you can appoint a corporate or institutional successor trustee. You can appoint more than one successor trustee, can delegate different duties to each successor trustee, and can retain the power to remove the successor trustee and appoint a new one. Appointing an alternate successor trustee is suggested.
Most people tend to nominate their loved ones to act as successor trustee. Here are a few things to consider when naming a loved one to act as successor trustee:
Does your loved one have time to commit to fulfilling the many duties of being a trustee?
Does your loved one have the knowledge, skills and information necessary to manage the assets in your trust?
Are there any terms of your trust that could present a conflict of interest to your potential trustee?
Do you have conflicts in your family that could present problems for the trustee?
Does your trust hold assets that may force the trustee to make difficult decisions like dealing with a family-owned business?
Is the cost of a professional trustee a consideration?
These are the kinds of questions you should ask yourself when deciding who should be successor trustee. You can also discuss these questions and issues with your estate planning attorney.
Q: What Are Some of the Most Common Mistakes When Implementing A Revocable Living Trust?
Probably the most common mistake is the failure to properly “fund” the trust. That means that the clients failed to re-title their assets in the name of the trust. Another common mistake is the failure to properly consider the role and responsibility of the successor trustee and choosing someone who is not properly trained. Another mistake is to have a trust that may fit the needs of someone else, but not your situation. It is very dangerous to create your own trust from a computer-generated “one trust fits all” form. That is why it is important that your trust be properly drafted by an attorney concentrated in estate planning.
Q: How Much Does a Revocable Living Trust Cost?
The exact cost of a revocable living trust depends on factors such as how complicated your estate is, how complex the terms of the trust are, and whether tax planning is needed. Moreover, in addition to your revocable living trust, we will also prepare other important estate planning documents including a Certificate of Trust, “Pour-Over” Wills, a Living Will and Health Care Power of Attorney and a Durable General Power of Attorney. All of our revocable living trust packages are done on a reasonable flat-fee basis that will be clearly communicated to you after a free consultation — so you will never receive a “surprise” bill from our office.
Q: Should I put my car in my Trust?
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Q: Should you put rental properties into your Living Trust?
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