Everyone over 18 years of age should partake in some form of estate planning. Every adult has personal belongings and property that they would want to pass on to their loved ones and or others in the event of an unexpected accident or illness. That’s why having a written legal document distributing your assets at your passing is essential to estate planning. The two most common estate planning documents are the last will and testament and revocable trust. Now the question becomes: should you have a will or revocable trust or both?
A revocable living trust is a written contract wherein you name a person, another trust, or company, to be responsible for managing property for the benefit of others. The property is held “in trust” for the people you wish to benefit. If we think of a trust like a company, you transfer all your personal and real property to your company, and then you become the manager of the company for life, or you select another person to manage the company for you – this would be analogous to how a trust works. The ownership of the property is transferred to the trust and then you continue to manage and have all the benefits of your property as you did previously, with the added benefits outlined below. With a revocable trust, you can change its terms, the property held in it, or revoke it entirely at any time.
The key difference between a will and a trust is that a will goes into effect after you pass and transfers property at death, while a trust goes into effect as soon as it is created and you are able to transfer property while you are alive, at death or afterwards. It is estimated that only about 20% of Americans have revocable trusts. Should you join that 20 percent? Here are the 4 advantages of a revocable trust and how it could benefit you.
1. Avoid a Costly and Lengthy Probate.
When a person passes with a valid will or without a will or trust, his or her property will need to go through a court process known as probate, which can take months to years, depending on the case. Probate is the court-supervised administration of your estate after death. An estate is all your personal and real property that you owned at death. During a probate proceeding, a judge supervises the transfer of all your assets to your beneficiaries. A judge will select a personal representative which may be an attorney who will oversee the process and all the costs for the probate and attorney(s) fees will come out of the estate. This can become very expensive and time-consuming. In some states, probate starts at $10,000.00. However, with a well-prepared and funded revocable trust, the probate process and fees can be entirely avoided.
In addition to avoiding probate, a revocable trust keeps your personal and financial matters private and confidential. A revocable trust doesn’t become part of the public record, unless a trustee or beneficiary insists on court approval of accounts. Probate records including a will, on the other hand, are open to the public.
3. Property Management Arrangements.
With a revocable trust, you will have complete control over your assets, while you are living. If later you decide you no longer wish to manage the trust property, or you become incapacitated, a successor trustee that you have chosen will take over the day-to-day management of the property. This is a very important aspect of a trust instrument. If you become incapacitated and need someone to care for your family’s finances and well-being, a successor trustee can assure that your family is taken care of in time of need.
4. Peace of Mind.
A revocable trust allows you to provide specific instructions on the distribution of your assets instead of a judge. There may also be some tax advantages to establishing a revocable trust. With a revocable trust, a single person can pass up to $5,000,000+ and a married couple can pass up to $10,000,000+ state and federal estate tax free. A properly drafted and funded trust can avoid probate, keep your personal and financial matters private, and you will have peace of mind knowing that you have planned ahead for your family’s future and that your estate will be managed and distributed by someone you trust according to your wishes.
Disclaimer: This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.