Advertisements, seminars and books which promote revocable living trusts foster the misconception that probate is an evil to be avoided. Living trusts are also touted as devices which avoid estate taxes and protect assets from long-term health care costs.
The reality is that probate is usually not a difficult process, and it largely depends on what state you reside in, who your next of kin are, and what attorney is chosen to handle the process. Having a revocable living trust does not avoid estate tax, nor protect assets; only irrevocable trusts can accomplish these goals. However, revocable trusts do offer a number of advantages as an estate planning tool.
Revocable living trusts act as substitutes for a last will and testament. They are flexible instruments which can be amended at any time. The maker of the trust, commonly referred to as the grantor or settlor, has complete control over the assets owned by the trust while he or she is alive, but upon death the trust becomes irrevocable and can not be changed. These trusts typically provide that if the grantor becomes disabled, the person named in the trust instrument as a successor trustee steps in and has the authority to handle the grantor’s affairs. Upon death, the assets owned by the trust are distributed by the trustee to the beneficiaries named in the trust document, without any need to go through a court-supervised probate process. This provides a quick and efficient way to pass one’s assets to the beneficiaries chosen by the grantor. An important caveat is that in order for the trust to accomplish its purposes, the grantor must transfer all of his/her assets to the revocable trust. Simply listing them on a schedule attached to the trust is not adequate; the ownership of assets much be changed so that the trust becomes the owner. Some assets, such as an automobile or a cooperative apartment may not be easily transferred to the trust, if permitted at all.
While revocable living trusts may not be appropriate for everyone, they do work well especially when one owns property in a state other than where one resides, as it will avoid a second probate. It is also particularly useful when one does not have close relatives or one believes that family members will contest their will.
Of course, before including a revocable living trust into one’s estate plan, experienced legal counsel should be retained, not only to draft the appropriate documents, but also to provide advice and guidance with respect to the titling of assets.