Do I need a revocable living trust, a will or both?
While a will’s intent may seem straightforward, there’s a more direct way to ensure your assets are handled according to your wishes after your death, saving your heirs time and hassle in dealing with the courts.
A revocable living trust (RLT) generally involves three parties:
- The grantor is you, the person who creates the trust.
- The trustees are the people who agree to accept your property and manage it as the trust agreement directs.
- The beneficiaries are those who will receive the assets and/or property in the RLT.
A revocable living trust is curated by you while you are alive, and it can be altered at any time while you are living. The primary advantage of a RLT is to avoid a long and costly probate – a legal proceeding that occurs upon your death. One of its additional advantages is that it allows you to retain authority over the administration and distribution of your possessions. RLT can also keep money in your family for future generations. Setting up a revocable trust with dynasty provisions protects multi-generational family wealth. While people may view RLTs as something that’s only for the rich, it may make sense with a lower net worth than you might expect.
What else do I need to know about setting up a revocable living trust?
Two important steps must take place: Once you set up the RLT, you must transfer assets into it immediately. Without the funding, your assets will be subject to probate. After you set up the legal structure for a trust, you must retitle any assets you want to be administered by the RLT. Once inside the trust arrangement, your assets avoid probate and will be distributed according to your wishes. Also, signing a trust document without retitling assets renders your RLT useless.
Retirement plan accounts, such as IRAs and 401ks, cannot be retitled to a living trust, although you could change the beneficiary designation to the trust.
RLTs likely will cost more to establish than wills due to the extra documentation, and they do require more time to set up than a will. That extra time and cost will pay off in reduced time and stress for your beneficiaries and trustees. RLTs also offer other benefits, as well. For instance, under the right circumstances, a properly funded living trust can help reduce estate taxes.
Assets that are owned in your RLT are subject to the grantor’s creditors in the same way as if they owned them themselves. So, therefore, there are no creditor protections available by just having a revocable trust and transferring assets into the revocable trust during the grantor’s lifetime.
If I start a revocable living trust, do I still need a will?
The short answer is yes. Generally, a revocable living trust cannot entirely replace the need for a will. There are some assets you may not want to place in a trust. For example, it may be impractical to transfer certain personal property such as vehicles, furniture, or jewelry to a your RLT. Therefore, some of your assets will remain outside your trust, making a will ideal to specify your intended beneficiaries. If you have minor children, a will may also be used to designate guardianship.
The bottom line is that qualified legal expertise is a must to help ensure proper planning. Horn & Johnsen can help you examine all variables affecting your assets to determine if a revocable living trust, along with a will, can benefit your short- and long-term estate planning goals.