What is a Revocable Living Trust?
A Revocable Living Trust, also called a Living Trust, is a legal document created while you are alive which allows you to transfer title of your property from your name to a named trustee. At the time of the transfer the trustee has legal ownership of the transferred property. Generally, the trustmaker, or the person who created the trust, is also the trustee, and retains control of the assets (some trustmakers allow a financial institution to manage their trust property).
While the trustmaker is alive they generally retain the right to manage, invest and spend the assets in the trust for their own benefit. If, however, the trustmaker becomes mentally incapacitated, someone else would be designated as the disability trustee to manage the trust funds. Finally, after the trustmaker dies another person can be designated as the successor trustee to administer the trust, which includes paying the trustmaker's bills, taxes and debts. If there are remaining funds within the trust after all the expenses have been paid, the successor trustee is responsible for distributing the remaining assets and funds to the appropriate beneficiaries.
Pros and Cons of a Revocable Living Trust
To determine whether or not you need to create a Revocable Living Trust you will need to discuss your financial situation with an estate lawyer. There are, however, general pros and cons of establishing a living trust which will be discussed below.
1. Avoiding Probate
The biggest advantage of using a Revocable Living Trust is it will allow your family or beneficiaries to avoid probate. Probate is the legal process which will require your loved ones to prove in court your will is valid, identify and inventory your property, pay your debts and taxes and distribute your property. By creating a revocable living trust your loved ones can avoid the restrictive rules of probate and have almost immediate access to cash following your death.
2. Avoiding Guardianship or Conservatorship
Next, if you have a Revocable Living Trust and you become incapacitated, you may be able to avoid guardianship, which is the legal proceeding to appoint a guardian to care for you and to ensure your legal rights are protected. A Revocable Living Trust can help you avoid the restrictive rules of guardianship or conservatorship.
Finally, having a Revocable Living Trust will also avoid the publicity of a probate hearing, which by state law is a public legal proceeding. The Revocable Living Trust does not have to be filed with the court, and it will not be available to the public.
There are, however, some downsides to creating a Revocable Living Trust. For instance, there will be some up-front expenses of creating the trust which could be higher than simply writing a Last Will and Testament. But when you consider the costs which you could encounter at the time of the decedent's death with probate or if you have to appoint a guardian through a costly court case, the trust could, in the end, be less expensive. There are also some extra hassles funding your trust after it has been created. For instance, creating the trust is only the first step. You will also need to contact your banks, investment and insurance companies, and transfer agents to change account and stock ownership and update beneficiaries.
Debtors can take steps to reduce the costs of fililng bankruptcy.