A revocable living
trust is a written declaration and contract in which you state that you (as
"settlor") are transferring your property into a revocable living trust for the
benefit of yourself during your lifetime (lifetime "beneficiary") and then for
the benefit of your heirs (remainder "beneficiaries"). You will be the
"trustee" of your revocable living trust which means that during your lifetime,
you will have complete control over the revocable living trust's assets. The
"successor trustee" you name will take control over your revocable living trust
in case of your death or incapacity. In addition, you will have the power to change,
amend, or revoke your revocable living trust at any time during your lifetime.
Avoidance of Probate
The main advantage of a revocable living trust is the avoidance of
probate. Probate is a state court proceeding in which your property is transferred to your
heirs. All Wills must be probated; not so with a revocable living trust. Since probate
only affects assets you own at the time of your death, assets placed in a revocable living
trust are not owned by you, therefore, there is no probate on those assets. Probate will
generally cost about 3-4% of the value of the probate assets and will take from 9 months
to 2 years (absent litigation or contested claims) to complete. You save probate fees by
using a properly funded revocable living trust.
Confidentiality and Continuity of
Confidentiality and Continuity of Ownership: Since probate is a court
proceeding, your Will and the valuation of your assets are open to public inspection. A
revocable living trust, however, is confidential and the transfer of assets from the
revocable living trust is kept from public view. When the settlor of a revocable living
trust dies or becomes incapacitated, the successor trustee continues the administration of
the revocable living trust. With a revocable living trust, there is no "gap"
period between the time of death and the appointment of the executor which occurs under a
Will. Also, the continuity of the revocable living trust is preserved if the settlor
becomes incapacitated through illness or accident through the successor trustee. In this
case, the revocable living trust would be administered for the benefit of the grantor.
Initially a trust has greater
costs with respect to its formation and implementation than a will, but those costs are
usually a small percentage of the amount saved through the avoidance of probate costs at
the time the grantor dies. Additionally, if
confidentiality and continuity of ownership are important objectives, then the trust is
the document of choice. Conversely, if
confidentiality and continuity are not important objectives, and if the initial cost and
administration of a trust outweigh the potential savings through the avoidance of probate,
then a will should be used.
For additional information on Trusts and Estate Planning in
general, please see the Tax Prophet's section Estate Planning.
All contents copyright ? 2008 Robert L. Sommers, attorney-at-law. All rights reserved. This internet site provides information of a general nature for educational purposes only and is not intended to be legal or tax advice. This information has not been updated to reflect subsequent changes in the law, if any. Your particular facts and circumstances, and changes in the law, must be considered when applying U.S. tax law. You should always consult with a competent tax professional licensed in your state with respect to your particular situation. The Tax Prophet(TM) is a trademark of Robert L. Sommers.