1. What is a revocable living trust?
A revocable living trust is a written agreement designating someone to be responsible for managing your property. It’s called a living trust because it’s established while you’re alive. It’s “revocable” because, as long as you’re mentally competent, you can change or dissolve the trust at any time at your own discretion for any reason. Typically, a living trust becomes irrevocable (cannot be changed) when you die.
A trust involves three parties: you as the creator, the trustee or trustees who agree to manage your assets as directed by the terms of the trust, and the beneficiaries.
You will probably want to name yourself and your spouse as trustees, because you want full control of the property while you’re alive. As trustee, you will have the power to wheel and deal with your assets—sell them, exchange them, invest them, do whatever you want with them.
2. What is the difference between a living trust and a will?
Both a will and a living trust contain your inheritance instructions, meaning who gets what, when they get it, and how. A trust may be preferred by people concerned with privacy and avoiding probate. A living trust will not become part of the public record unless a trustee or a beneficiary demands court approval of accounts. Probate records are always open to the public.
3. What if I don’t have either one?
If you don’t leave valid instructions about your estate, your property generally goes to your spouse or your closest heirs, which may not be what you want to do. Also, the state could assign someone you wouldn’t trust to manage the distribution of your property or be the legal guardian of your minor children.
4. What can a revocable living trust do for you?
A living trust can provide you with the peace of mind that comes from knowing that your assets and your heirs will be protected in the event that you unexpectedly become unable to handle your own financial affairs. It eliminates the need for your estate to pass through probate court before it can be passed on to your heirs. Properly worded, a trust can also be used as a substitute for powers of attorney
Your trust can be written in a way that will pass your assets on to your loved ones or to a qualified charity immediately upon your death, or you can designate that they be portioned out over time and in amounts that you specify. Your attorney can help by including tax savings clauses that may help to reduce state and federal estate taxes.
5. Who are the trustees?
Any mentally competent adult may be named trustee. In most cases, you would name yourself and your spouse as trustees in order to retain full control of the property while you’re alive. If you become too ill or disabled to manage your property, your co-trustee or successor trustee will do this for you.
Many people name their children as successor trustees; however, another popular option is to name a professional fiduciary, such as the trust department of a bank, a professional trust company or a private fiduciary. If you have chosen a charity as a beneficiary of the trust, you may choose to make the charity a successor trustee.
6. Do I have to put a lot of money in a living trust at the start?
This is entirely up to you. A trust can be established with a small amount when it is created, or with as much as every asset you own. You can even specify in your will that your trust is to be funded only upon your death. There are advantages to each choice, depending on your needs and concerns.
7. Do I need an attorney to prepare a living trust?
It is important to seek the counsel of a legal professional when creating a trust. And beware of using generic or online living trust kits that claim to be customized documents prepared by an attorney.
The cost for setting up a living trust will depend upon the attorney used, the complexity and size of the assets and the geographic area. The fee could be as little as a few hundred dollars, but more typically runs several thousand or more.