Revocable Trust (Living Trust)
A Will is probably the most common way to transfer your assets and to protect your heirs after your death.
However, a Revocable Trust can be a better way to transfer property to your heirs and if drafted properly, it can also be valuable tool in the event you become incapacitated. A Revocable Trust can be modified or cancelled anytime during your life.
What is a Revocable Trust? It is a document wherein you, as the Settlor or Grantor, during your lifetime, establish rules for the management and distribution of your property upon incapacity or death. Any competent adult can set up a revocable trust and any competent adult can serve as Trustee. Most of my clients serve as the initial Trustee of their own trusts and name as successor Trustees, their spouse, a relative, or a financial institution. The heirs to whom your trust property will be distributed are the beneficiaries. Most of the time, the beneficiaries are spouses, children, grandchildren, but they can also be charities. Please don't forget the family pet! (Many of my clients set up Pet Trusts).
Establishing a Revocable Trust has advantages over a will. For example:
Avoiding Probate: Probate is the process whereby the court oversees the transfer of your property to your heirs. If you don't have a Will, the state will determine your heirs by law. This can be an extremely time-consuming and expensive process. It can take anywhere from 6 months and up to 2 years for an estate to clear probate. The fees and costs can exceed 3% of the estate assets! A Revocable Trust can allow your heirs to receive your assets without having to submit to Probate.
Incapacitation: Unlike a Will, a revocable trust allows you to provide for the management of your assets in the event you become incapacitated. For example, your spouse or partner may need to sell some property you own together to pay for medical or other costs. If you are too ill to manage your affairs, your spouse or partner may not be able to sell the joint property, as you are still alive. However, a trust would give your spouse or partner the right to manage and dispose of trust property.
Children: A revocable trust can allow a trustee to manage property on behalf of minor children. Do you really want your 18 year old to have complete control over any money or property he or she inherits, including life insurance proceeds? In a trust, you can instruct your trustee on the disbursement to children, including providing for college, health, and other expenses. You can name the age at which all the property is to be turned over to the children. Most of my clients think that age 25 is a time when their kids are responsible to handle money.
Remarriage and Blended Families: You and your spouse can set up separate trusts to keep your individual property separate. You can instruct the trustee to disburse certain property directly to your children from your first relationship. This type of estate planning should also include pre or post nuptial agreements.
Privacy: Probate documents, including the Will itself, becomes part of the public record. There is no requirement to file a Revocable Trust. In this way, you can keep the terms of your distribution from the general public.
Avoids Will Contests: A will is always subject to challenge by your heirs. If a will is challenged, a probate court will determine the will's validity and can interpret its provisions. A revocable trust is less vulnerable to legal challenge and can even include a clause disinheriting a challenging party!