by Tim Goodwin
A will is the foundation of your estate plan and it is essential if your financial affairs are to be settled in accordance with your wishes. If you die without a will, or "intestate" as the law refers to it, essentially the state becomes your executor and your property will be distributed according to its laws. Drawing up a will has become so easy, and it is relatively inexpensive, leaving very little reason why everyone shouldn’t have one. The question becomes whether you should have a living trust in addition to your will.
What is a Living Trust?
A living trust, or "inter-vivos" trust, is an estate planning mechanism that enables you to have your property transferred to, and managed by a trust during your lifetime. And, because it is revocable, you can change it at any time depending you’re your circumstance. After your death, the trust becomes irrevocable and all of its provisions must be carried out by a trustee who is designated by you.
The Key Advantages of a Revocable Living Trust
- Keeps your assets out of probate: The assets owned by your trust are passed directly to your family, thereby avoiding the delays and costs of probate court.
- Keeps your affairs private: What goes into your trust stays with your trust, at least as far as your private financial matters. Your will is a matter of public record, but a trust is not.
- Keeps things running smoothly: You can arrange for a trustee to manage its assets even after your death in order to maintain the continuity of income from a business or an asset.
- Keeps the trust going: In cases where a trustee in no longer able to perform the duties, your trust can designate successors who can step in immediately.
Revocable Living Trust Basics
Parties to the Trust: A trust includes a grantor (you), a trustee (you, your spouse or anyone you designate), and a beneficiary (typically your surviving family).
Establishing the Trust: A living trust can be set up fairly quickly. It usually requires an attorney to draft and authenticate the trust which is a legal document that specifies all of the grantor’s terms, names a trustee and beneficiary, and then lists all of the trust’s assets. After the grantor and the trustee sign the trust, the title of selected properties and assets can be changed to the trust as owner.
The Life of a Trust
A revocable living trust is a living document that can be changed or revoked by the grantor at any time during his or her life. So, if changes in marital status or other family relationship occur, they can be reflected in the trust. Assets and properties can be added or removed. Trustee designations can be changed. Your living trust should be reviewed periodically, because after the death of the grantor, it will become irrevocable (if the grantor includes both spouses, it continues as a revocable living trust).
You Still Need a Will
The living trust is the mechanism for distributing your property, however, you still need a will in order to execute the trust. The trust is the primary beneficiary of your will. The added benefit of having a will is that, for any property or assets that might have been excluded from the trust, the will acts as a "catch all" to ensure that all property is distributed according to your wishes. Additionally, if you need to designate a guardian for dependent relatives, you need a will, because there is no place in a trust to establish guardianship. No matter how large your estate, if you have any concerns with the distribution of your assets, you should consider a revocable living trust. It is recommended that you seek the services of an estate attorney in drafting your trust as well as for periodic reviews.