The most commonly utilized estate planning tool today is the Revocable Living Trust. This widespread popularity is due to the ability to retain control of the assets contained in the trust, the ease and ability to modify the trust, the ability to benefit from the assets in the trust, and the ability to avoid probate.
So, what is it and how does it work? Think of all your assets as a wad of dollar bills that you carry with you clenched in your fist every day. Everywhere you go the wad of bills is exposed and, if you happen to trip and fall, the bills are likely to go flying everywhere. You know better than to walk around with a wad of cash in your hand everyday, that’s why you use a wallet. With a wallet, you can keep all your bills tucked neatly inside, while keeping them immediately accessible to you. Think of the revocable living trust as a wallet for your assets.
When you trip and fall in life (death, incapacity) without an estate plan, your assets go flying everywhere and you have no control over them. However, with a revocable living trust (unlike a will), your assets are neatly tucked inside the trust, safe from harm, and will be handled in accordance with your wishes. Your revocable living trust is your wallet to protect your assets. The assets remain the same, and you retain full access and control as the trustee of the trust. However, one thing to keep in mind, because you retain access to and control over the assets, a revocable living trust does not shield the assets from creditors or from the Federal Estate Tax.
Revocable living trusts are frequently used in combination with a pour-over will. A pour-over will transfers all assets subject to your will into the trust after death. However, because the assets are not already owned by the trust, the assets are likely to be subject to probate before the trust can take ownership.
The key to an effective trust is actually funding it (putting your assets inside.) Remember, an unfunded trust isn't worth the paper it's written on. I talk more about what it means to fund a trust Here. The key benefits of a revocable living trust include:
1. Avoiding probate
2. Protecting privacy
3. Planning for incapacity
4. Managing out-of-state real estate
5. Preventing family friction
Click Here for more estate planning advice, informational videos and articles, as well as a copy of my new Ebook Six Things to Know Before Making a Will or Living Trust.