When it comes time to plan for your family's financial future by creating an estate plan, there are several options from which you may choose. Some of the most common options include a last will and testament, a revocable trust, or an irrevocable trust. For many individuals, estate planning may seem overwhelming, as terms like revocable and irrevocable trust can sound confusing and you may not know which option will be right for you. While each estate planning option provides its own unique benefits and determining which option will be right for you will depend on a variety of factors, many people find a revocable trust to be the best estate planning option. Indeed, it provides them with the flexibility, privacy, and security they are looking for in an estate plan. To help you make this important decision, here is a look at answers to the most frequently asked questions people have about revocable living trusts.
What Is a Revocable Living Trust?
A revocable living trust is a legal arrangement in which an individual transfers their property and assets into a trust where it is held for the benefit of the creator during their lifetime. While property within the trust technically belongs to the trust, the trust's creator can continue to benefit from it as its primary trustee. Upon the creator's death, assets within the trust are then transferred to the beneficiaries that the creator designated before their death. Then, the distribution of these assets is overseen by a trustee that the trust creator designated to manage the trust after they are gone.
What Does It Do?
So, what exactly does a revocable trust do for trust creators? One of the primary features of a revocable living trust is that, as the name implies, it is revocable. This means that the creator of the trust can still make changes to the trust during their lifetime. Should the trust creator choose to add or remove property from the trust, or change their beneficiaries, they will have the option to do so at any time. Revocable trusts then afford a greater level of flexibility than other estate planning options, as you do not have to worry about whether you are making the right decision when establishing your trust. If you later decide to remove a beneficiary or reclaim property from the trust, you will have the right to do so.
How Does It Differ From an Irrevocable Trust?
There are key differences between a revocable and irrevocable trust, but the primary difference is right in the name. Unlike a revocable trust, which can be altered by the trust creator during their lifetime, an irrevocable trust cannot be altered once established. Once you create the trust and fund it by placing assets in it, an irrevocable trust cannot be changed. Even if you have a falling out with a relative and don't want them to be a beneficiary anymore, there is little that you can do to make changes to an irrevocable trust once it has been established, and you cannot act as trustee during your lifetime.
Once you place assets in an irrevocable trust they are no longer yours and you cannot reclaim them in the future. However, you can continue to benefit from the trust, and income generated by the trust will be distributed to you during your lifetime. So why would anyone choose an irrevocable trust then? There are certain financial benefits that you and your estate can gain through the use of an irrevocable trust, which is why it is important that you consult an estate planning attorney who can help you to decide if a revocable or irrevocable trust is right for you.
What Are the Benefits of Choosing a Revocable Trust?
Aside from the obvious benefit of choosing a revocable trust for the flexibility it provides, you may be wondering what other benefits a revocable trust can provide. Revocable living trusts are one of the most popular estate planning options as they provide trust creators' with a variety of benefits such as privacy, control, and protection from court challenges after the trust creator's death. Here is a look at just a few of the many benefits choosing a revocable living trust can provide you and your family with.
Helps Your Estate Avoid Probate
Probate is the court-supervised process in which a deceased person's estate is distributed to their heirs by a judge. This process can be complicated and lengthy, which can put additional stress on your relatives during an already difficult time. Additionally, the probate process can be costly, reducing the portion of your assets that your beneficiaries will receive. Contrary to popular belief, even if you have a will your estate will likely still have to go through probate, as a judge will need to ensure that the will is valid, and they will oversee the distribution of your assets in order to ensure that your will is followed.
Fortunately, you can help much of your estate to avoid the probate process by creating a living trust. Assets that you place in a trust can bypass the probate process, as these assets technically belong to the trust. Your assets can then be distributed to your designated beneficiaries without court intervention. However, it is important to remember that only assets placed in your trust avoid probate, so a small portion of your estate not placed in the trust may still be subject to the probate process. This process should be simple if most of your assets are being handled by your trust.
Maintain Your Privacy
Not only can the probate process be complicated and costly, but it can also put your family's privacy at risk. What many people do not realize about probate is that, when an estate passes through probate, a list of its contents becomes public record. For those who are concerned about their family's privacy, the probate process can feel like an invasion of privacy as anyone will be able to see what was in their estate at the time of their death. A living trust can then help to protect your family's privacy by keeping the division of your assets after your death private.
Ensures That You Are Taken Care Of
A revocable trust can also help to ensure that you are looked out for in the event that you become incapacitated and can no longer care for yourself or make decisions regarding your health and wellbeing. With a living trust, your appointed trustee would take over your affairs automatically if you become incapacitated, and your family will not have to go to court or appoint a conservator in order to ensure that you are taken care of. You can even make stipulations in your trust regarding how you are to be cared for in the event that you become incapacitated. Further, you can even require that certain conditions have to be met before you are declared incapacitated, such as requiring an evaluation by a specified doctor. This ensures that you are taken care of, and your interests are looked after, no matter what happens to you down the road.
Control What Happens to Your Estate
Considering that you will have worked hard over the course of your lifetime to cultivate your estate, it is understandable that you will want to have absolute control over what happens to your assets when you are gone. However, if your estate goes through probate, this may not be the case. Even if you have a will, a judge will ultimately have final say over what happens to your estate. If it is important to you that you have complete control over where your assets go after your death, you should seriously consider establishing a revocable trust. A revocable trust will help the bulk of your estate to avoid probate, and it gives you the flexibility to continue to make changes to your estate during your lifetime, ensuring that your estate is handled exactly as you would like after your death.
Protection From Court Challenges
While court challenges to estates are not that common, they do happen. Fortunately, if your estate is challenged by a relative after your death, it will be much more difficult for them to challenge a revocable trust than it would be for them to challenge a will. Not only is it harder to challenge the validity of a trust, but with a revocable trust you will have been actively involved in managing the trust throughout your lifetime, which would demonstrate to the court that your intention was for your estate to be handled according to the terms of your trust. This is another way in which a revocable living trust can help you to ensure that your assets are divided according to your wishes upon your death.
Do I Need a Revocable Living Trust?
Hopefully, the above guide will help to give you a better idea of whether or not a revocable living trust is the right estate planning option for you. A revocable living trust can be a great option if you want the flexibility to continue to make changes to your estate throughout your lifetime, and it can be ideal for those looking to keep their estate out of probate. However, you should always consult an estate planning attorney when making these important decisions regarding your estate. Contact us to learn about how we can help guide you through the estate planning process.
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