A revocable living trust (sometimes referred to as a family trust) is an estate planning tool that allows you to control how your assets are managed and used while you are alive and well, if you become incapacitated, and after you die—all without the need for court intervention.
A revocable living trust can also be used to minimize or eliminate estate taxes upon your death, and to safeguard your assets from your loved ones’ financial immaturity, their creditors and judgment debtors, their possible bankruptcy, and even their potential future divorces.
The Benefits of a Revocable Living Trust-Based Estate Plan
You have a built-in contingency plan in the event of your incapacity.
Your successor trustee can step in and take over the management of your assets while you are still alive if you are no longer able to handle this function for yourself. He or she can take over this role without any need for a court proceeding so the transition is a completely private event.
You can avoid the public, time-consuming stressful probate process.
Upon your death, your successor trustee is authorized to take over the management of your assets without any need for court intervention or supervision. This person already has clear instructions in your revocable living trust as to who should now benefit from the assets because your trust contains explicit instructions about who your beneficiaries should be after you die.
Your loved ones can have immediate access to your assets after you die.
If you have a spouse or children who depend upon you for their financial survival, they will not be subjected to a six-plus month probate period where your assets may be frozen, during which they may have to petition the court for access. Instead, they can continue to benefit from your assets as needed right away.
If you are at risk of paying estate taxes upon your death, your revocable living trust-based plan can include tax-saving strategies to minimize or even eliminate this risk.
If you have concerns about the financial maturity of your future heirs, you can set up restrictions on their right to manage or access their inheritance, and you can even protect their inheritance from their own creditors, potential lawsuit judgments or bankruptcy, and divorcing spouses.
The Three Parties to a Revocable Living Trust
- THE GRANTOR
The person who owns the assets that will be transferred into the
- THE TRUSTEE
The person who manages those assets.
- THE BENEFICIARY
The person who is getting the benefit of those assets.
While you are alive and well, you would be all three of these roles with respect to your revocable living trust: you are the grantor, the trustee, and the beneficiary. In other words, you are transferring your assets into your trust, which you will then manage for your own benefit during your lifetime. This will not feel any different to you from how you are used to dealing with your assets now.However, when you first establish your trust, you will name other people to serve in the various roles down the line. For example, you will name successor trustees to take over the management function when you become disabled or die, and you will name beneficiaries to get the benefit of your assets upon your death. Because the trust is revocable, you can make changes to these choices any time you want for the rest of your life.
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Creating a Revocable Living Trust Alone is Not Enough
The key to making a revocable living trust-based estate plan work is to ensure that you have properly transferred your assets into your trust as soon as it is created. If you die and some or all of your assets are not held in the name of your trust, they will have to go through the court-supervised probate process in order to be transferred to your loved ones, defeating one of the benefits of your trust-based plan.
I was talking to a friend recently who had done a do-it-yourself estate plan through some Internet forms. I asked her if she had created a living trust. She was pretty sure that she had, but when I asked her if she had ever funded her trust, her eyes got really wide. She had no idea she was even supposed to do that, let alone how she would go about doing it.
This is one of the reasons I would strongly caution you about thinking of estate planning as a set of documents. You are going to get a very false sense of security if that is your framework. Estate planning is really a series of decisions you need to make and actions you need to take. Internet form documents don’t provide legal advice or implementation guidance.
My friend thought she had been a responsible parent by putting this plan together, but her plan would not have actually worked for her if something had happened. In fact, by failing to transfer her assets into her trust, she was actually ensuring they would have to go through the probate process to be transferred and distributed.
Proper legal advice is critical to ensure you are not only establishing a revocable living trust that will meet your unique needs, but that you are properly transferring your existing assets into it, and properly acquiring all future ones in the name of your trust. A good estate planning attorney will help you do this up front, and will also help you monitor your trust for the long-term to be sure you continue to keep it up to date as your needs and assets change.
What does it Cost to Establish a Revocable Living Trust?
- Make sure that if you are taking action to plan for your family’s future well-being, you are doing it in a thoughtful and effective way. DIY forms will not come with legal advice or guidance, nor will they come with any follow-up. Although it might cost a little more up front to hire a competent attorney to create your revocable living trust, think about the thousands of dollars you will save when the time comes by avoiding unnecessary probate costs, minimizing your estate taxes, and protecting your children’s inheritance through thoughtful trust-based planning.
- Depending upon your marital status and the complexity of your needs, you should expect to pay between $3,000 and $5,500 to create a foundational trust-based estate plan. This should include not only your revocable living trust, but the other key aspects of a comprehensive estate plan as well, such as financial powers of attorney, healthcare powers of attorney, and living wills. For families with minor children or special needs family members, a foundational plan should also include a Parent Contingency Plan to address guardian issues for both the short- and long-term. Your fee should also include future follow-up.
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