A revocable living trust can be a good choice when you are deciding how you will be passing along assets to your heirs. The primary reason why revocable living trusts are utilized is to avoid probate.
When a will is admitted to probate, the probate court determines its validity. If anyone wanted to contest the validity of the will, they could do so while the probate process is underway.
Creditors could seek payments from the estate during probate, and final taxes must be paid.
The executor of the estate handles all of these tasks, including the preparation of the assets for distribution to the heirs. This preparation can involve appraisals and liquidation of property.
As you might imagine, it takes time to complete all of these tasks. Until everything is finished and the estate has been closed, the heirs to the estate will not be receiving their inheritances.
This time lag is one of the reasons why people often look for probate avoidance strategies. There are also expenses that pile up during the probate process, and this is another reason why it is often avoided.
Revocable living trusts enable asset transfers outside of probate. Let’s look at the anatomy of a revocable living trust.
The person who creates and funds the trust is called the grantor.
The grantor selects a trustee that will administer the funds that have been placed into the trust. You as the grantor can serve as the trustee of the trust while you are still alive so you are the one making all the decisions.
You name a successor who would take over this role after your passing or upon your incapacitation. The fact that you can make provisions for the handling of your financial affairs in the event of your incapacitation is one of the appeals of revocable living trusts.
You can name a trusted individual who is known to you to act as the trustee if you choose to do so. However, you may not know someone who is a professional quality money manager. And, there are no guarantees with regard to the ongoing health and fitness of your trustee if you just select an individual.
It is possible to arrange for a bank or a trust company to act as the trustee instead.
The beneficiary is the person who will receive distributions out of the trust. Once again, you as the grantor can act as the beneficiary while you are living, but you name a successor or successors to assume this role after you pass away.
This is a brief outline that basically describes the workings of a revocable living trust. If you would like to learn more, we invite you to read our free report Living Trusts, Calculating the Benefits, and to register for and attend one of our free living trusts seminars.