You reach a certain point in your life when you start thinking about aging and how you can divide your assets among your loved ones when death comes. You have several options, including a formal will, irrevocable trust, and revocable living trust. Each has its advantages and disadvantages, but more people are seeing the long-term benefits of a living trust.
How Does a Revocable Living Trust Work?
A revocable living trust, according to the American Bar Association, is a legal document that allows you to plan what will happen to your assets in case of an illness, disability, or accidental death. It is also called a grantor trust, living trust, or inter-vivos trust.
A revocable living trust is an estate planning tool that states the person to whom your properties will be transferred upon your passing. “Revocable” means you can amend what’s written in your trust whenever you like. You can add or remove assets when necessary.
In the trust, you are named the grantor. You have to identify the trustee (the person who will manage the assets), your co-trustee (usually your spouse who will manage the trust when you die), and the successor trustee (the person next in line to receive the assets in case the primary trustee passes away).
Once you have decided on your trustees, you will need to transfer ownership of your property using a document called a Quitclaim Deed or a Warranty Deed. This does not mean they will have full ownership of the property yet. You still have the right to receive earnings from the property and do whatever you wish as long as you are still living.
Who Needs a Revocable Living Trust?
A revocable living trust will be beneficial if you have a significant amount of assets which can be a source of conflict when dividing among loved ones upon your death. A revocable trust assures you that your properties and assets will go to the person you believe will be able to care for them, deserves them, and have greater benefits from it.
The assets that can be included in a revocable living trust are real estate properties, stock portfolios, valuable possessions (e.g., jewelry), bank accounts, and other types of investments. Things that cannot be included in a living trust include insurance, motor vehicles, health savings accounts, and qualified retirement accounts.
What are the Advantages and Disadvantages of a Living Trust?
A living trust is an ideal option if you want greater control over your assets while still living, but want to properly allocate them in case of your unexpected incapacity or accidental death. It is the complete opposite of an irrevocable trust, which is set in stone, and you lose access and control to all your assets once the irrevocable trust document is created. Living trusts are also easier to amend or revoke and add and remove properties from without going through additional legal procedures.
A living trust gives privacy to both the grantor and trustee because it does not become a public record. It is also a good choice for those who want to avoid the long and expensive cost of probate. The process allows the transfer of assets to beneficiaries in a matter of weeks instead of several months or years.
A living trust, however, has some limitations and disadvantages compared to a will or irrevocable trust. One disadvantage is that a living trust does not exempt you from estate taxes. It is also very tedious and costly to create compared to a will, but the cost and effort are only at the beginning and there are lesser problems for beneficiaries when you think long-term.
Another disadvantage of a living trust is the annual maintenance to ensure that objectives are in place. Not all kinds of assets can be included in a living trust, so if there are any remaining assets that need distribution, you will need to create a separate will, which will be another expense.
A trusted and experienced attorney should be able to help you set up a revocable living trust if you are already at peace with the idea that everything in this life has an end. You do this to avoid any conflicts among your loved ones when dividing your properties after your passing. A trust will be their legal guide to make sure all assets are divided fairly, equally, and most importantly, according to your conditions.