When many people think of estate planning, they think only of a will, or a document that will determine the distribution of their property after death.
However, there is another strategy, known as a revocable living trust, which can determine the final distribution of assets while avoiding the costly and prolonged process of probate.
Probate is the legal process in which an individual’s final affairs – such as acceptance by a court of the validity of the will, resolution of any financial claims against the estate, and disposition of property and assets as provided in the will – are carried out. Probate can take months to resolve and can devour up to eight percent of the value of an estate in various legal fees.
A revocable living trust avoids probate, and allows you to determine the control and distribution of your assets now as well as after your death.
At its heart, a revocable living trust is a legal device which is used to hold property outside of the main estate, yet still under the control of the individual who created the trust. This is called a revocable living trust simply because the individual who creates the trust has the right to dissolve or alter the trust at any time.
The person creating the trust, called the trustmaker, transfers property and assets into the trust where it will be overseen by a trustee who has been named by the trustmaker.
In most cases, the trustmaker and trustee are the same person, which means the trustmaker continues ownership and control of the assets in the trust. The trustee can also continue to enjoy use of those assets and any profits gained from those assets.
Revocable living trust contain two clauses – what will happen if the trustee is mentally incapacitated, and what will happen if the trustee dies – that are key to using such trust as a way to avoid probate.
If the trustee becomes mentally incapacitated, the trust allows for control of the assets to be passed to a new trustee named in the trust document. The new trustee will then assume responsibility to control the trust until the trustmaker’s death.
Upon the trustmaker’s death, all properties and assets of the trust are transferred to the designated recipients specified in the trust.
Since this property was transferred as part of a legal trust, and not left to a beneficiary under a will, it is not subject to the prolonged, often expensive probate process.
Estate planning is serious business.
Contact us today if you would like to discuss this or other estate planning strategies.