A financial advisor recently asked me if I could briefly explain to him the benefits of planning with a revocable living trust versus a will. After our discussion, the light bulb came on in my head, and I realized that there are probably a lot of people who would be interested in knowing how an “RLT” might benefit them. So, let me take a minute of your time to discuss a few of the advantages…
Here are 5 benefits that living trust planning offers:
- Control – You get to manage the assets in the trust throughout your lifetime and decide who gets what, when they get it, and how they get it when the time comes. A will is only a death instrument.
- Comprehensive Disability Protection – A living trust helps ensure that your loved ones have both the tools and instructions necessary for taking care of you, your affairs and finances, and themselves in the event of your incapacity. A will cannot provide this and even a plan comprised of a will and durable power of attorney has its limitations. (More on “Living Probate” in another blog coming soon.)
- Heightened Privacy – Assets in trust generally avoid the probate process, which does more than just avoid additional costs. It keeps your private matters from being open to the public for viewing. Oh, and if you don’t think anyone cares about what you have enough to look…when was the last time you were contacted by a telemarketer? Assets passing via will are subject to the public probate process.
- Coordination (the “bucket” theory) – Many of the largest assets you have will pass outside of probate, and via beneficiary designation (e.g. life insurance policies). If you have one “bucket” to put the majority of your assets in, you don’t have to be as concerned with inequality amongst inheritances when asset values increase and decrease. A will-based plan (i.e. without an RLT) may require additional planning just to coordinate assets not subject to probate.
- Probate Avoidance – This is the one everyone thinks about because of the cost. Well cost is one factor, but another big one is time. Probate generally takes several months to wrap up and this is the general rule for the simple cases. Complex cases can take even longer, especially if there are interested parties who aren’t necessarily happy with the will. Assets passing via will are subject to probate and therefore the time and cost associated with the additional work.
So, as you can see, a revocable living trust can be a very valuable tool depending on the circumstances. It is important to understand, however, that having a revocable living trust doesn’t mean you won’t need a will. Generally, a “pour-over” will is also created when you have a revocable living trust. The pour-over will helps ensure that any assets that remain unfunded (not titled in the name of the trust during your lifetime), are “poured” into the trust after you die. BUT, the pour-over is generally done through the probate process. So, it should only be a backup plan…or as we like to call it… a “spare tire.”
The revocable living trust is one of many tools that can be utilized to help accomplish your estate planning goals, and you don’t have to be wealthy to reap the benefits. But, your individual circumstances and the applicable laws will make or break the strategy. So, before you decide that this is the right tool for you, make sure to discuss it with your estate planning attorney.
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