It’s important to have a will, but a living trust offers benefits and protections that may be worth considering.
A revocable living trust governs who you leave your property to upon your passing. The word ‘revocable’ in the term signifies that you can change the trust during your lifetime. Most people use a living trust to avoid the probate system. Any property left in the trust often doesn’t have to go through probate or the court system that finalizes a person’s estate. This can save your heirs time and money.
The living trust is an actual document. It’s a written document that states who gets what upon your passing. The trust will also have a trustee. While you are alive, typically you make yourself the trustee, but you also appoint someone to succeed you upon your passing.
How to Get a Revocable Living Trust
The process of getting the revocable living trust is not simple, but worth it in the end. You put the work in now, while you are healthy and of sound mind. When you are nearing your end of life, you’ll have peace of mind that your assets are taken care of and that your heirs won’t have any difficulty inheriting your assets.
It starts with making a list of your assets. Next, you must designate each asset to a beneficiary – much like you would do with a will. Once you create the trust, you must then transfer the assets into it, which we discuss below. It’s important to work with a financial planner that understands revocable living trusts to ensure that you cover every detail.
Will vs Trusts – What’s the Difference?
Essentially, a will and trust do the same thing – they distribute your property upon your passing. However, there are many differences between a will vs trust.
For starters, a will doesn’t become effective until you die. A trust, on the other hand, becomes effective as soon as you draft it. If you need someone to care for your estate should you become incapacitated, a trust is the way to go.
Sometimes a trust isn’t all that you need, though. If you have minor children, you’ll need a will to appoint guardianship of your children. If you don’t, the issue will have to go through the courts in order to appoint a guardian for your children.
Wills may only control property that you own in your own name. It can’t manage assets that go directly to a beneficiary. An example is life insurance. This doesn’t go into effect until you die and it goes directly to your named beneficiary. A will can’t touch that. However, a living trust can if you transfer the life insurance policy into the trust.
Finally, trusts help you in life and death. If you became unable to make your own decisions, the trust could manage your estate if you name a successor trustee to take over in the event that you are no longer able to manage your estate.
What are the Benefits of a Revocable Living Trust?
Living trusts have many benefits including:
- Faster distribution of assets – Since you can avoid probate, your beneficiaries receive the assets faster. They don’t have to worry about going through the court system which can take months or years to resolve.
- Better protection – If someone decides to contest the distribution of your assets, a trust offers more protection, which saves your beneficiaries money in the end.
- Manage your privacy – Living trusts are private documents and because it doesn’t go through the court system, it doesn’t become public record.
- Avoid conservatorship – In the event that you become disabled or incapacitated, your family won’t have to go to court to appoint someone to manage your affairs. The trust already has a chosen trustee, which immediately takes over when you are unable.
- Changeable – You can change a revocable living trust at any time. Whether you want to add or remove assets or change a beneficiary, you can do so throughout your life.
- Saves your beneficiaries money – While the revocable living trust costs you money upfront, it saves your beneficiaries money down the road. You cover the brunt of the expenses for them, but then they don’t have to deal with the cost of probate and the courts.
Other Considerations
It’s important to know what steps you need to take when starting a revocable living trust. Most importantly is the need to transfer the assets into the trust. It’s not enough to just make the trust. You have to physically transfer each asset into it. Certain assets, you can list in the trust and attach it to the trust document.
Any assets that have titles, however, such as real estate, must be legally transferred into the trust. In other words, you must title the property in the trust’s name. This may mean filing a Quit Claim Deed with the county or refinancing a mortgage into the trust’s name.
It’s important to revisit your assets periodically too. Chances are that you have more assets when you are 60 years old versus when you are 30, when you may have started the trust. Make it a habit every year or every other year to go over your assets and ensure that they’re included in the trust.
A revocable living trust is a great way to plan for your own life as well as that of your beneficiaries. It protects your assets while you are alive, dictates who will take over your affairs if you become unable, and ensures that your loved ones get your assets as you prefer upon your passing. It is an investment up front, but it provides more protection than a will in most cases.