I Need an Estate Plan … Now What?
When most people decide to create an estate plan, they most often decide to write a will. Wills have been used for hundreds of years to ensure that one’s property is distributed in a certain way – often to family, close friends, and charitable organizations. A will has long been seen as a critical document that provides peace of mind that, in the event of a person’s death, the person’s property will be taken care of.
While wills have historically been used to determine what happens to property after the property owner’s death, the “revocable living trust” has become a commonly used alternative in recent years. A revocable living trust involves the transfer of property to a separate legal entity that you control as the “trustee.” Therefore, during your lifetime you maintain control over the property and can modify the trust as you see fit. You can include property you attain after the trust is written, you can return property to your personal ownership that was previously transferred to the trust, and there is no effect on property or income taxes. The revocable living trust document will also name a “successor trustee” to take over your role as trustee in the event of your death or incapacity. Think of a revocable living trust as your own sports team in which you play the role of head coach, general manager, and owner – you have complete control.
A revocable living trust, like a will, is what will ultimately determine what happens to your property after your death. However, a revocable living trust has many advantages over a will.
A revocable living trust can be used to avoid the probate process
This is the most cited advantage of a revocable living trust. When you use a will to detail what should happen to your property, the person you appoint to oversee the execution of your will (often called an “administrator” or “executor”) or another person, often a “beneficiary” under the will, must take the will to the probate court to prove that the will was, in fact, your last wish as to what would happen with your property. This process is costly and commonly requires an attorney’s assistance. It is also a very time-consuming process, as most estates must remain open for at least six months, if not longer. The probate process is also public record, so the estate plan you establish in your will is visible to anyone interested in the details.
A revocable living trust does not suffer from any of these shortcomings. A trust only requires the trustee to transfer the property in the trust to the trust beneficiaries as detailed in the trust itself – there is typically no court intervention with trust administration. This removes significant costs of the probate process. The beneficiaries of the trust, unlike the beneficiaries under a will, do not have to wait months to receive property. As soon as the trustee transfers the property to the beneficiary, the process is complete as to that piece of property. Finally, unlike wills, trusts are completely private because they are not filed with the court. Therefore, if you (or your loved ones) value privacy in this process, trusts provide a tremendous advantage over wills.
A revocable living trust can be used to manage property upon incapacity
While a will is designed to distribute property after death, it does not assist with the management of property in the case of mental and/or physical incapacity. Without a trust, the concern of incapacity is most often addressed through a “power of attorney.” A more historical way to approach incapacity has been a court-supervised guardianship, but this has the obvious downside of court supervision. A trust removes the concerns of incapacity as to the property that is within the trust because the property is owned by the trust. Therefore, the original owner’s incapacity does not affect the property included in the trust. It is still recommended to create a power of attorney to pair with the revocable living trust, as the power of attorney will cover any property that may not be included in the trust.
While the revocable living trust is a great estate-planning tool, it is not ideal for every estate. The revocable living trust is particularly effective with large, complex estates that contain lots of property and lots of beneficiaries. A revocable living trust is also highly recommended if you own multiple pieces of real property (i.e., houses, buildings) in separate states, as real property must be “probated” in the state in which the real property sits (remember: a revocable living trust has the benefit of avoiding the probate process). However, if your estate has less property and fewer beneficiaries, a simple will is likely to be very effective.
Estate planning is as complex as it is important, and the proper estate plan depends heavily on your personal situation. However, one thing is true for everyone: you should have an estate plan in place. Our firm offers assistance in many aspects of estate planning, including writing wills, trusts, and power of attorney documents. We also offer representation throughout the probate process.
We offer free consultations – if you have not yet developed an estate plan, we would love to help. Contact us today.