Revocable Living Trust
You may wish to discuss with your attorney an alternative estate plan, called a Revocable Living Trust (RLT). This plan involves a will, and a trust instrument. The trust is one of the most common methods used by people to "avoid probate." Assets held in a trust do not have to "pass through probate" upon your death in order to get to your loved ones. Probate involves posting in court, in a public file, an inventory of all your assets at death, so that your financial affairs are a "public record." Assets held in a "living trust" are not published in a probate inventory, but remain private, between you and your trustee.
Think of the trust as a separate legalentity, like a corporation. You place assets into the trust, like funding acorporation. While you are alive, you control all the assets in the trust, justlike you would if you owned all the shares of a corporation. When you die, yoursuccessor trustee, someone you choose, manages the trust for the benefit ofyour children and other beneficiaries. Your children receive the money only asyou directed in the written terms of the trust, so you avoid the problemsassociated with giving immature children large sums of money outright. Peoplewho have chosen to prepare an RLT and who have taken the time to putessentially everything they own into it, will greatly relieve themselves and their loved ones of the problems ofprobate and asset guardianship.
According to state law, all assets "in" your RLT,that is, which are titled in the name of the Trust, will not be part of your "probateestate" or be subject to the probate system upon your death. If you andyour spouse are acting as the Trustees of your own Trust and one of you becomesdisabled or incompetent, the other Trustee can easily replace the disabledSettlor as Trustee without court-administered guardianship proceedings. Thiscan save the family a great deal of money, and reduce the stress and anxietyassociated with guardianship. A child or trusted friend or relative can serveif you are unmarried or if your spouse cannot serve.
With a trust, you are not subject to the interference,delays, publicity, and cost of the probate system. Planning with a trust cansave the average American family thousands of dollars in probate fees, attorney fees,and court costs alone, according to a national study by the AARP. The upfrontcost of a trust is somewhat higher than a will, but the savings in the end makethe initial expense more than worthwhile.
Your RLT can provide you with the following benefits andadvantages:
1. COMPARED TO PROBATE, YOUR RLT:
- Greatly reduces the COSTS of settling your affairs after death. An RLT avoids probate costs, which range from 5% to 10% of the probate estate (more if there is a Will contest);
- Greatly reduces the TIME consumed in settling your affairs. It typically takes 9 months to 2 years to complete the "probate" administration, and a will contest can take over a decade. Your RLT can be settled in a matter of days;
- Keeps your private information PRIVATE. With probate, your Will and all of the related inventories and accountings are made public by recording them at the local courthouse. Not so an RLT, which is not a matter of public record;
- Avoids a separate "ancillary" probate for out-of-state land. A separate probate is otherwise necessary in the county where the land is located, requiring out-of-state attorneys and court proceedings, increasing the cost to your heirs, and usually adding to the delay;
- Eliminates post-probate court control. The Trustee of a trust under a Will must file accountings and motions with the court, whereas the Trustee of your RLT acts independently;
- Improves or preserves estate liquidity (cash availability) after death. Less money is needed to pay for final settlements and cash is more readily available to the family members;
- Allows for smoother transition in business management. The Successor Trustee can easily step into the shoes of the business owner without court entanglement;
- Is less open to attack from a disgruntled heir. The RLT, unlike a Will, is not recorded with the court, and only proper beneficiaries need be notified. Heirs who would like to better their position at the expense of your loved ones never need know of your estate plans;
- Eliminates the need for CUSTODIANSHIP of your minor child's inheritance. Under state law, your minor child cannot receive more than a small amount of money without the appointment of a court-administered fiduciary or custodian. Your RLT will eliminate this requirement. If your minor children are beneficiaries of your estate, you will have a overseer one way or another; I counsel my clients to choose the form of the trust and eliminate the judicial middle-man.
2. AS COMPARED TO COURT-ORDERED GUARDIANSHIP, YOUR RLT:
- Greatly reduces the COSTS of guardianship. Incompetency proceedings are costly as lawyers are needed and evidence is admitted into court;
- Eliminates the EMBARRASSMENT to your family. Incompetency proceedings are open to the public;
- Avoids court INTERFERENCE in decision making. Your Trustee manages your assets and makes decisions without the "assistance" of a judge;
- Allows for easy return of the trust owner after recovery. If you are disabled or otherwise unable to handle your affairs, your successor or co-Trustee can step in until you can return to the position of Trustee. This can all be accomplished without court permission.
3. AS COMPARED TO A POWER OF ATTORNEY, YOUR RLT:
- Provides CERTAINTY. More and more banks, brokers, and the like are refusing to honor powers of attorney, are requiring onerous documentation before they will honor them, or are requiring great specificity before they will honor the power of attorney, to protect themselves against lawsuits. There is no law that requires anyone to honor a power of attorney. A trustee of a trust has greater power than an agent under a power of attorney because the trustee OWNS the asset, as opposed to managing it for another person;
- Can eliminate the requirement that you be found INCOMPETENT before it is effective;
- UNIFIES your estate plan, by providing for a single document and individual to make decisions for you;
4. AS COMPARED TO JOINT OWNERSHIP, YOUR RLT:
- Eliminates LIABILITY to the creditors of your co-owner. Most people do not realize that, if your non-spousal co-owner (usually a son or daughter) has financial trouble, the joint assets (ALL of them, not half) are subject to the claims of your co-owner's creditors. This can occur through bankruptcy, divorce, or judgment (auto accident, for example);
- Eliminates EXPOSURE to the bad faith of a co-owner. "He/she would never do that to me" is, all too often, wishful thinking. I have handled cases where children have stolen their parents' very homes;
- SIMPLIFIES your life. If you hold real property or titled personal property (stocks, etc.) jointly, you could be required to get the signature of your co-owner before you can transfer or sell the asset.
Your estate plan should be structured to minimize exposureto probate fees and federal estate taxes. The Federal Estate Tax is usually notthe relevant issue for most people. Probate and asset management are the mostpressing issues. By its nature, an RLT avoids probate and provides for superiorasset management.