What is a living or revocable trust?
A trust is a legal way of holding, managing, and distributing property. Every trust must have four elements: (1) a creator of the trust, called the “trustor” or the “grantor” (2) assets, also called the “corpus” (3) a person who holds, manages, and distributes the assets, called the “trustee” and (4) a “beneficiary,” the person for whose benefit the trust is created.
A living trust is revocable. In most revocable trusts, the trustor, trustee, and beneficiary are all the same person.
Who does not need a trust?
There are some people who will not benefit from a living or revocable trust. Those who are married without significant assets and without children who intend to leave their assets to each other, for one. Any other persons who do not have significant assets and have very simple estate plans also do not need a living trust. Finally, anyone who wants court supervision over the administration of his or her estate should not have a living trust. (The assets remain in the trust, there is no “estate.”) Probate can often be avoided without using a living trust, by setting up “payable on death” accounts, making beneficiary designations, holding assets jointly, etc.
Why do people create trusts?
By creating a revocable trust, people can avoid probate. Also, these trusts avoid conservatorships because if you become disabled, a trustee is already in place to manage your assets for you. And, you won’t have to deal with lawyers and courts.
However, revocable trusts can be and are contested, just like a will. And, administering a trust after your death is not cost-free. Even if probate is avoided, the successor trustee will seek help from a lawyer to make sure the debts are paid, all of the necessary tax forms filed, and the assets are properly distributed to your beneficiaries.
What are some myths about these trusts?
Living trusts always avoid probate. After death, the revocable trust will not cut off the claims of creditors against the trust assets. So, many times the successor trustee will open a probate estate anyway to require the creditors to file claims within the time required by law or be barred from collecting claims against the estate.
Living trusts are no more effective than wills in saving state and federal estate taxes.
Who should have a revocable trust?
People who want to avoid probate. The trustee administers the trust and makes distributions based on the trust provisions — no court involvement is necessary.
People who value privacy. A trust usually remains private, but a will becomes a public document as soon as it is filed with the court for probate.
People who own property in another state. Real estate is probated where the property is located. If you live on a farm in Pennsylvania and also have a vacation condo in Arizona, you’ll have two probates. A trust avoids this because the property is part of the trust and there is no estate to probate. The trustee administers the trust, including both properties.
People who live or spend a significant amount of time in a state where probate is time-consuming, burdensome, and costly.