You don’t need to be rich to benefit from creating a trust as a part of your estate plan. There are many benefits to creating trusts, and a revocable living trust is one of the most versatile estate planning tools available.
A revocable living trust is a trust account that you can set up and fund while you are alive. As the grantor, you can name yourself the trustee, and that allows you to retain all ownership control over your assets throughout your lifetime. When you die, control and administration of the trust will pass to the successor trustee. This successor trustee will be responsible for administering the trust in accordance with your instructions. These instructions include determining who will be the beneficiaries of your trust, how and when they will receive distributions of assets, and how assets that remain in the trust should be managed.
There are many reasons why you and your heirs could benefit from creating a revocable living trust. Here are eight to get you started:
1) Avoid Going to Court
This is the number one reason people prefer creating trusts as a method of estate planning.
When you die, any assets that you have accumulated throughout your lifetime become part of your estate. Your estate, in accordance with your will, is distributed to your heirs. However, before any assets are distributed or transferred, your estate has to go through the probate process. This means that your will goes on public record and your loved ones will have to go to court, where the court will determine whether the will is valid and authentic. This probate process can be costly and takes months to complete.
However, funds and property that are placed into a fully-funded trust can be transferred to your heirs immediately and without the cost of going to court. This is especially important if you own property in multiple states. You want to avoid sending your heirs to multiple states, where they will have to deal with multiple attorneys and courts systems to receive their inheritance.
2) Keep Your Financial Affairs Private
When an estate goes to probate court, the will is placed on the public record, and there is a period during which the public is given time to contest the will. Unfortunately, there is no way to avoid this public disclosure of your property and assets during the probate process. The only way to keep your property private is to keep assets out of probate. A trust document, unlike a will, can be kept private and allows the transfer of your assets without public disclosure.
3) Adapt with Changing Circumstances
A revocable living trust is, as the name suggests, revocable. This means that, while you are alive, you can make changes to the trust document and add or remove property as you see fit. You can even dissolve the trust if that makes sense for your situation. A revocable living trust gives you the opportunity to create a trust now and make changes throughout your lifetime as your family grows and the value and makeup of your estate changes. Once you die, the trust automatically becomes irrevocable, which means that no more changes can be made to the trust document.
4) Get Organized
This is a great hidden benefit of creating a trust – or even of meeting with an attorney to begin estate planning. Meeting with an attorney to determine which assets to include in a trust is a chance to go through old files and desk drawers to locate all important account statements, titles, deeds, etc. This is also the time to replace lost documents, update beneficiary designations, and ensure that all titles and deeds are clear and ready to become a part of your estate. After you have located all relevant documents, you can determine which assets you want to include in the trust and transfer ownership of that property to the trust.
5) Avoid Guardianship or Conservatorship
If you become incapacitated and are no longer able to take care of your financial affairs, your revocable living trust can provide for how you want your assets managed. Under the instructions of a trust, control of your estate can transfer to your successor trustee pretty much right away. Without these provisions, your loved ones would need to go through a court process to certify your incapacity and have a guardian or conservator appointed to act on your behalf. Again, to avoid going to court and spending unnecessary time and money, you can provide for the possibility of incapacity in your living trust document.
6) Provide for Minors
Minors cannot inherit property or assets until they reach the age of majority. A trust is a great way to ensure that your minor beneficiaries are cared for before they reach the age of 18. Your trust document can instruct how assets should be distributed to minors, in what amounts and for what purpose. It will be the trustee’s responsibility to ensure that your wishes are carried out for the benefit of minor heirs.
7) Help Out Heirs Who are Bad with Money
If you have loved ones who struggle to manage their finances, or whose assets are subject to creditors or former spouses, a trust may be a good way to ensure that they are provided for over time. Your trust instructions can indicate how assets are released to your loved ones over time. This helps avoid any problems that may arise if a loved one inherits a large sum of money or property at one time.
8) Provide for Continuous Asset Management
You have been working throughout your lifetime to build your estate and create a legacy that you can pass down to your heirs. This likely means that you have been working with financial institutions or advisors to plan for how your assets should be managed and allowed to grow over time. If you want this management to continue after your death, you can provide for that in your trust document. This would allow your assets to continue to be managed and grow beyond your lifetime, while still benefiting your loved ones in accordance with your wishes.