The foundation of your estate plan is a will, also known as a last will and testament. Depending upon your situation, your estate planning attorney may recommend additional documents, including trusts.
The first part of your estate plan is the creation of a will to provide clear instructions of how your property should be distributed after you pass. The will is also used to name a guardian for minor children if your family is still young. The concept that many people don’t understand is that without a will, these and other decisions will be made for you according to the laws in your state. It’s far better to make these decisions for your family yourself.
If your estate is simple, your estate plan will be straightforward and simple. If you have a large amount of assets, children from different marriages, or own a business, your estate will draw on different strategies used by the estate planning attorney. Among them may be a revocable trust.
Forbes’ recent article, “Revocable Trusts And Why Should You Consider One,” explains that a revocable trust, also called a “living trust” or an inter vivos trust, is created during your lifetime. On the other hand, a “testamentary trust” is created at death through a will. A revocable trust, like a will, details dispositive provisions upon death, successor and co-trustees, and other instructions. Upon the grantor’s passing, the revocable trust functions in a similar manner to a will.
A revocable trust is a flexible vehicle with few restrictions during your lifetime. You usually designate yourself as the trustee and maintain control over the trust’s assets. You can move assets into or out of the trust by retitling them. This movement has no income or estate tax consequences, nor is it a problem to distribute income or assets from the trust to fund your current lifestyle.
A living trust has some advantages over having your entire estate flow through probate. The primary advantages of having the majority of your assets avoid probate is the ease of asset transfer and the lower costs. Another advantage of a trust is privacy because a probated will is a public document that anyone can view.
Even with a revocable trust, you still need a will. A “pour over will” controls the decedent’s assets that haven’t been titled to the revocable trust, intentionally or by oversight. These assets may include personal property. This pour-over will generally names the revocable trust—which at death becomes irrevocable—as the beneficiary.
Another reason for creating a revocable trust is the possibility of future diminished legal capacity, when it may be better for another person, like a spouse or child, to help with your financial affairs. A co-trustee can pay bills and otherwise control the trust’s assets. This can also give you financial protection by obviating the need for a court-ordered guardianship.
There are many different strategies available to protect your family and your property. Consult with an experienced estate planning attorney in your state to ensure that your estate plan follows the proper formats and procedures. The attorney will be able to help you clarify your goals and make sure that your plan puts them into action when you pass.
Reference: Forbes (March 11, 2019) “Revocable Trusts And Why Should You Consider One”