Revocable Living Trust - Is it right for me?
A majority of our clients utilize 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 on 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, 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.
At death, assets held by you "inside" your Living Trust do not have to go through the probate process. All of your assets will simply pass according to the instructions you left in your Living Trust and, although an administration process is still necessary, it does not involve the time, expense, and publicity of probate court intervention.
Simply put, by transferring your assets to your 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 family, depending upon your instructions. Most often, the trust includes instructions specifying that upon your death or upon the death of your surviving spouse, your children or other loved ones will become the "remainder beneficiaries" -- the persons who enjoy the trust assets remaining after your death.
A revocable living trust provides flexibility, enabling you to control how and when your assets will be distributed to loved ones or charity after your death. You may, for example, pass assets with "strings attached." Many practitioners believe that clients should never leave anything of any consequence to their loved ones outright, or "free of trust." They believe that everything should be left in trust for the heirs' benefit in order to protect the heirs in a way they cannot do for themselves. If you chose to follow this philosophy, you could, for example, specify in your trust that each of your children is to serve as his or her own trustee (or along with cotrustees) for his or her lifetime and that the trust provide for your children's needs as they arise. In this way, you have allowed each child to manage his or her own funds in the way he or she desires; yet, by retaining everything in trust, you have to some degree protected each child's assets from the claims of creditors, 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 the assets pass to your grandchildren.
By leaving assets in trust, you may be concerned that you will be overly controlling your children after your death. But you can provide as much latitude to your children as you like; your attorney drafts the terms of the trust in accordance with your wishes. Thus, the terms can be as restrictive or as nonrestrictive as you choose, on the basis of your knowledge of each child's situation.