Do You Need A Revocable Living Trust?
Many are confused about what a revocable living trust is, why it’s different from a will, and if they even need it. Are there differences you should be aware of? How can you choose which is better for your family? Do you need both?
Let’s take a deeper look at living trusts and make them a little more understandable so you can determine if you’re better suited for other life planning options.
What is a Revocable Living Trust? Is it a Will? Do I need a Trust or Will?
Let’s start off with a basic understanding of what a trust is. It is a legal device that states that your assets are transferred into the ownership of a trust. The right to manage the assets is held by one person (trustee) while another person has the right to use the assets (beneficiary).
The “living” part of the trust means that the trust was created while the creator, or grantor, was living. With a living trust, the grantor can act as both the trustee and the beneficiary until he or she passes, at any point becomes incapacitated, or if he or she resigns as trustee/beneficiary. If any of those events occur, remainder beneficiaries and successor trustees are named. The “revocable” part of the trust simply means that this trust can be altered as personal and financial situations change.
A living trust is definitely not a will. Your will only becomes effective at your death, and must go through probate in order to be legally valid. Think about it like this- with a living trust the ownership of your assets is established while you are living so it doesn’t need to be determined valid by a probate court, while with a will the ownership of your assets is established after your death and will therefore need to be verified by court.
Creating and maintaining living trusts are typically more complicated and more expensive than wills, however there is an added point of security with living wills.
So Do I Need One?
That’s definitely up to you and your family to decide, but wills and trusts are generally looked at as supportive of one another rather than separate. Here are common situations regarding where needing a living trust is brought into question:
You want to avoid probate court- In any other state than Texas, this may be a valid reason to get a living trust. A simplified probate process that provide for independent administration which allow the executor of the will to handle estates without constant approval from the court is available in Texas. In other states, the cost of the probate proceeding can roughly equal the cost of creating and maintaining a living trust, therefore no choice is really the obvious choice. The same delays and subsequent costs for probate aren’t as much of a concern inside Texas.
You own properties in other states- Those who own property outside of Texas can consider obtaining a living trust for those properties in an effort to avoid any complicated and expensive probate courts in other states. To save on costs, some property owners only create living trusts for assets located in another state.
You want to keep records of your estate private- If your estate is complex or you just prefer to keep the details of your estate private, staying out of probate may bring you benefit. Wills will require that an inventory listing of assets and their values be filed with the probate court after you pass, and that listing, along with your will, will be public record.
You want to safeguard your estate if you become disabled- A living trust can name a trustee who will be able to manage your estate properly in the event that you become incapacitated in more detail than a power of attorney. The trust will support an existing power of attorney with financial institutions and a detailed living trust will negate the need for guardianship agreements as your trustee will know how to handle your assets. Also, power of attorney is terminated if guardianship is implemented, meaning your estate could be managed by someone you didn’t appoint. With a living trust, an appointed guardian doesn’t have the power to control assets within the trust.
You want to protect your will- With a living trust in place, it may make it more difficult for family members or beneficiaries to contest your will as it is generally more difficult to challenge provisions placed in a living trust than a will, especially if you create and maintain the trust many years before you pass.
After you pass, a will can be challenged citing bad influence or incapacitation when the will was drafted, without you being able to defend the will. Living trusts can help protect your estate especially if you’re involved in a complex family dynamic. A “pour-over” will can also protect assets you unintentionally omitted from your living trust. Start thinking of a living trust as a tool to be used in conjunction with a will, not instead of.
You want to reduce taxes on your estate- More often than not, wanting to create a living trust to save on taxes is moot. The assets in your living trust are still included in estate taxes when you pass- living trusts have no effect on estate taxes, income taxes or gift taxes.
More complicated living trusts like a bypass trust can avoid double taxation among married couples, however it is more beneficial for those who own valuable assets and this same trust can be found in wills.
What are the disadvantages to having a living trust?
So hopefully you see some benefit and safeguard in obtaining a living trust in Texas however when determining if you need one, you’ll also need to know the disadvantages of having a living trust.
- Living trusts will require up-front costs to create, and require repeated costs during maintenance with any assets you acquire.
- Maintaining a living trust is complex and on-going. Any assets you have and obtain will need to be in the name of the trust.
- Setting up a living trust will take time and a large amount of effort, and furthermore revoking that trust will take time and effort as well.
- If you appoint a financial institution as your trustee, you will most likely have to pay fees in addition to creation and maintenance fees.
- Any inconsistencies with your trust will cause delays with banks, mortgage companies, title insurance companies, etc.
All personal and financial situations are different. An experienced estate planning attorney can help you determine if a living trust is the right choice for your family and your assets. Although you may be uncomfortable with what may seem like the extra cost of hiring an attorney, your living trust will be created specifically for you without any important omissions.
Interested in learning more about revocable living trusts? Call the Law Offices of Christina Lesher at (713) 529-5900 for advice on making your estate plans.