What is a Revocable Living Trust, and Do I Really Need One?
The answer to the first part of this question is that a Revocable Living Trust is an alternative to a Probate Proceeding which saves you and your heirs lots of money and, if drafted and implemented properly, helps to avoid family discord.
The answer to the second part of this question is definitely yes in the vast majority of cases. In fact, the only people who do not need a Revocable Living Trust are those who own no real property and have less than $150,000 in gross assets, without regard to debt.
If you fall into this category, as many young adults do, you do not yet need a Revocable Living Trust, but you still need a Durable Power of Attorney, Health Care Directive, HIPAA Release, Living Will, and perhaps a Will (e.g., if you have children, to designate a guardian).
If you do not fall into this category, however, your assets will have to be transferred to your heirs (and in some cases to your spouse, depending how title to your assets is held), through a Probate proceeding, which is public, very time consuming, and very expensive.
A probate action is commenced by the filing of a Petition and payment of a filing fee to the Court, which is later paid by the Estate. Thereafter, the administrator or executor appointed by the Court has to publish a notice of the proceeding and provide notices to known creditors, at the expense of the Estate. Later one, other notices also have to be served. So right up front, the probate Estate will probably reduce the Estate you can pass on by a couple of thousand dollars.
Since your probate petition is public information, all creditors who follow these publications, including some to whom you may actually owe nothing, can file a claim against your estate, which your executor or administrator will have to address. Thus, the filing of a petition in Probate is an open invitation to creditors, no matter how valid or invalid the claim may be, and time and expense will be involved in addressing those claims.
Moreover, during the time that the Probate proceeding is pending, your spouse and other heirs will have limited control and access to the assets of your Estate. In many cases, this can be a hardship to your spouse and/or other heirs. At the end of the proceeding, moreover, both the executor or administrator and the attorney who represented the estate are entitled to fees which are set by a schedule (plus additional amounts in some cases). For example, if the total value of your Estate is around $700,000, your Estate might have to pay about $36,000 in administrator/executor and attorneys' fees.
So, you ask, how does a Revocable Living Trust avoid all of this? The answer is quite simple: like a corporation, a Revocable Living Trust is a separate legal entity which continues to "live" after you pass away. Since the Trust does not "die" when you pass away, no probate proceeding is required, which saves you and your heirs as much as ten to twenty times cost (or even more) of preparing the Trust!
Instead of a probate proceeding, your Trustee passes along your Estate to the beneficiaries you choose, in the manner you choose, without interference by the Court. Although your "Successor" Trustee has to provide notices and address claims, the costs of administering a Trust are usually a small fraction of the cost of a Probate Proceeding, and the assets are distributed to your spouse, children and other heirs much more quickly.
If you are single, the Successor Trustee will ordinarily pass your assets on to your children, other individuals you have selected, either directly or in some form of Trust, or to a Charitable organization (or series of charities). If you are married, however, your Trust will usually provide that (1) a substantial part of the assets must be distributed to your spouse, either directly or in some form of Trust, and (2) the balance of your assets are transferred to a "Bypass" or "Credit Shelter" Trust which provides that (a) the spouse shall have limited access to the funds in the Bypass Trust during her life and (b) upon the death of the surviving spouse, disposition of the remaining assets to your children or other beneficiaries, either directly or in Trust.
Of course, the success of your Revocable Living Trust and other Estate Planning documents depends upon several factors, including (1) the quality and completeness of your Revocable Living Trust and other Estate Planning documents, (2) the advice provided by your Estate Planning counsel both when your Estate Plan is prepared and during the following years, since your life, assets and relationships with your spouse, children and other heirs can change dramatically over your lifetime and (3) (a) whether or not you "fund" the assets you need to fund "into" the Trust, and (b) whether you prepare and file appropriate beneficiary designations for assets (e.g., IRA's) which should not be funded into your Trust.
In other words, proper Estate Planning is a life-long process, during which you may need counsel from time to time. At Estate Planning for Life, we strive to be your Estate Planning counsel both during your life and after, when your Successor Trustee may need assistance in administering your Estate, especially when a ByPass or Credit Shelter Trust is involved.
Moreover, at Estate Planning for Life, we prepare all of our plans using WealthDocx, which we believe is the most complete and most flexible Estate Planning software in the country. As a member of WealthCounsel, both our firm and our clients (should we be unavailable) also have access to thousands of Estate Planning attorneys around the country, all of whom have access to the same software.
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