A majority of our clients create a Revocable Living Trust ("Living Trust") as the cornerstone of their estate plans. Properly drafted, a Living Trust offers complete asset control to clients during their lifetime; provides for them and their loved ones in the event of their incapacity; and , upon death, allows them to pass their assets to their loved ones without the costs, delays, and publicity associated with probate.
In order to understand the benefits of a Living Trust, we must contrast it with a Will.
A Will is a "testamentary instrument." In other words, a Will takes effect only upon your death. A Living Trust, on the other hand, takes effect as soon as it is signed and assets are transferred to it. Both a Will and a Living Trust set forth your directions for the distribution of your assets upon your death. But unlike a Will, a Living Trust also directs the management of your assets during life. Consequently, after your passing, if you have a properly funded Living Trust, your "successor trustee" can simply continue to manage the assets in your trust without court intervention or supervision. You have peace of mind knowing your estate will be managed and distributed by someone you have personally selected.
At death or incapacitation, assets held "inside" your Living Trust do not have to go through probate. Your assets will pass to your beneficiaries according to the instructions you left in your Living Trust. Although an administration process is still necessary, there will be no probate attorney's fees or court costs, there will be no delay in distributing your assets, and you will avoid the publicity of probate court intervention.
In summary, by transferring your assets to a Living Trust, you maintain control of the assets during your life but have removed those assets from the probate process after your death.
Upon your death, the trust may terminate or may continue for the benefit of your heirs, depending upon your instructions. Most ofter, the trust includes instructions specifying that upon your death or upon the death of your surviving spouse, your loved ones will become the "remainder beneficiaries" - those who benefit from the remaining trust assets. A surviving spouse and the children from a previous marriage can receive fair treatment and protection under the terms of your living trust. Even insurance proceeds can be paid to the trust so your successor trustee can manage them for the benefit of your family.
A revocable living trust provides flexibility, enabling you to control how and when your assets will be distributed to the loved one or charity after your death. Many practitioners believe that clients should never leave anything of any consequence to their loved ones outright, or "free of trust." Most living trusts contain a "No Contest Clause" which prevents greedy beneficiaries and their lawyer from successfully attacking your estate plan.
You may choose to put limitations on the distribution of assets. A living trust can proved for the care, support and education of your children by turning over assets to them at an age chosen by your. Or you could specify that each of your children is to serve as his or her own trustee (or along with co-trustees) for his or her lifetime and that the trust is to provide for needs as they arise. In this way, you allow each child to manage his or her own funds, yet, by retaining everything in trust, you have to some degree protected assets from creditor claims, which could easily arise from a failed business venture, an overzealous litigant (e.g., as a result of an auto accident), or even an ex-spouse in a divorce. You may also avoid a possible second estate tax when your child dies and assets pass to your grandchildren.
By leaving assets in a trust, you may be concerned that you will be overly controlling after death. But you can provide as much latitude to your children as you like since your attorney drafts the terms of the trust in a accordance with your wishes. Thus, the terms can be restrictive or as nonrestrictive as you choose, on the basis of each beneficiary's situation.