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Probate can be a long, arduous, and costly process—especially in states that aren’t considered probate-friendly. Enter a workaround that is being used by an increasing number of people: revocable living trusts.
Revocable living trusts can
help your heirs avoid probate.
Like a will, a revocable living trust allows you to determine how your property is distributed when you die. Trust owners can also make stipulations about how
to direct specific assets
after they die.
The big advantage to using this type of trust is to avoid probate—giving the trust owner more control over how his or her assets are distributed. Because probate is a court process, overseen by a judge, things don’t always play out exactly as anticipated.
“The goal, in my opinion, is to eliminate the probate process.” says Anthony A. Saccaro, president of Providence Financial & Insurance Services, an RIA in Woodland Hills, Calif. “Even in states where it’s easier, it’s still the better way to go because it gives you
more control than you
have with a will. And no
matter how easy
probate is, having a
trust and having no
probate is easier.”
It’s advisable for individuals or couples with complex estate-planning needs to meet with an attorney—generally one who focuses on estate planning—to discuss whether a living trust is the right option and for preparation purposes. For a couple, one question to ask is whether it makes sense to form a joint trust or two separate ones. In less complex cases, individuals may be able to use an online legal site to create a living trust.
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Here's how they work.
Once the trust is created, it needs to be funded, meaning any assets such as real estate, bank accounts, taxable non-retirement brokerage accounts need to be retitled such that the trust owns them. The person who forms the trust has no restrictions on how he or she can use the cash or other assets in the trust during his or her lifetime. While the trust can be revoked during the owner’s lifetime, it’s more common for trust owners to make amendments as desired.
There can be downsides to revocable living trusts. For instance, some attorneys charge more for trust preparation than they do for a will. It’s hard to pinpoint a figure, though, since it can depend on factors such as how complicated the estate is, who prepares the documents, and what other documents are also being drafted.
Trusts are especially popular in states like California and Massachusetts, which have more restrictive probate laws than some other states. Even in states with more friendly probate policies, any additional upfront cost could pale in comparison to the host of fees related to the probate process, Saccaro says.
The trusts can also be a good tool for people who own property in multiple states and will otherwise have to deal with multiple probate courts.
People who are concerned about privacy might also want to consider a trust since its contents are private, while a will, once it enters probate, becomes public.
There can also be advantages to using a joint revocable living trust for married couples in community property states. This allows for more flexibility in allocating property at the first death than with traditional wills, says Steven E. Trytten, a
partner in the Pasadena, Calif., office of Henderson Caverly Pum & Trytten LLP, who routinely prepares revocable trusts on behalf of clients.
Of course, a revocable trust may not be right for everyone. In complicated estates, for instance, where heirs might battle
over distributions you
may choose to have
your estate go through
the probate process
since it can be helpful
to have the court involved,
Trytten says.
Someone who doesn’t own a home and who has limited assets might also prefer to start with a will for cost and simplicity, and then they could consider a trust down the road once they’ve accumulated property or other assets, says Sheryl Dennis,
founding partner at Fields and Dennis LLP in Wellesley, Mass. “Anyone who owns a piece of property I think should have a trust,” she says.
A few caveats with revocable living trusts:
It’s important to understand that a revocable living trust is one part of a larger estate plan. People still need documents including a durable power of attorney for finances, an advance health-care directive, a nomination of guardianship (if you have minor children) and a living will.
Individuals with a revocable living trust should also have a pour-over will, which is a special type of will used to make sure any assets accidentally left out of the trust are added to the trust after the owner’s death. While there is still a probate process that must be followed, if the majority of the assets, particularly real estate, are held in a trust, the probate of the pour-over will, in many states, should be much simpler and there may be a fast-track option for assets under a certain amount.
Another thing to remember is that retirement plans can’t be owned by a living trust, so it’s crucial for owners of these types of accounts to ensure their beneficiary designations remain up-to-date and in-line with their wishes.
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