Revocable Living Trust Vs Will
If you're like most people, you probably believe the best way to protect your heirs after your death is through a will. However, a living revocable trust is a far superior method of transferring property to your heirs. This is a contract wherein a party (the settlor), during his lifetime, establishes rules for the management and distribution of his property upon his incapacitation or death. Any competent adult can establish a living revocable trust, and any competent adult may serve as trustee. The heirs to whom the property in the trust will be distributed are known as the trust beneficiaries.
A living revocable trust is established in writing and a trustee is appointed to manage and distribute the property in accordance with the settlor's detailed instructions. Usually the settlor names himself as trustee of the trust property during his lifetime, with a spouse, friend, relative, or financial institution named as a successor trustee upon his death or incapacitation. This allows the settler to continue to manage and control the trust property during his lifetime.
Establishing a living revocable trust has substantial advantages over a will, for example:
• Avoiding Probate: The biggest advantage of using a living revocable trust is that, unlike a will, it allows an estate to avoid probate. Probate is the process whereby the court oversees the transfer of your property to your heirs (which will be determined for you by state Law if you don't designate them in a will), and can be extremely time-consuming and expensive. It can take between six months and two years for an estate to clear probate, and the fees on a $300,000 estate can be as high as $18,000. A living revocable trust provides an inexpensive way to transfer your assets to your heirs quickly and easily without having to submit to probate.
• Incapacitation: Unlike a will, a living revocable trust allows you to provide for the management of your property in the event that you become incapacitated. For example, if you own a house jointly with your spouse and become too ill to manage your affairs, your spouse may wish to sell your home to pay for medical or other costs. In this situation, a will or joint tenancy with a right of survivorship does not allow your spouse to sell joint property, as you're still alive. However, it gives your spouse the right to manage and dispose of trust property.
• Children: A common reason for establishing a living revocable trust is that it allows a trustee to manage property on behalf of minor children. In such a trust, a settlor can instruct the trustee on the disbursement of property to children, including providing for college and other expenses. In addition, a living revocable trust can name an age at which the property is to be turned over to the children, such as age 18 or 21.
• Segregation of Individual Property: Most states allow for a husband and wife to set up a joint living revocable trust, but keep their community and individual property in separate accounts. This is advantageous in situations where both spouses have their own significant assets or for blended families.
• Confidentiality: Whereas any estate that goes through probate, including a will itself, becomes part of the public record, a living revocable trust remains confidential. In this way, a settlor can keep the terms of the distribution of his property from the general public.
• Eliminate Challenges to the Estate: One of the biggest disadvantages of a will is that it is subject to challenge by your heirs. If a will is challenged, a court will determine the will's validity and has the power to throw out a will altogether. A living revocable trust is less vulnerable to legal challenge and can include a clause disinheriting any party who challenges the terms of the trust.
Most importantly, a living revocable trust can be modified or cancelled at any time during your life. While a standard will has its purpose, this allows far more control over the manner in which your assets will be distributed to your heirs.
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