A revocable trust is an estate-planning vehicle that is similar to a last will and testament, but has many important differences.
It comes into effect while you are still alive, unlike a will. Property and assets are transferred to the trust, to be held and administered by a trustee for the benefit of another. Typically, you would be the initial trustee of the trust, and would administer the trust for your primary benefit. After death, the trust could be administered for the benefit of a surviving spouse or children, or could be liquidated and distributed. This type of trust has several benefits.
First, a trust provides for the orderly management of assets. During your lifetime, you will typically be the sole trustee and can manage the assets as you see fit. You can sell and acquire assets, change investments, and fully utilize your resources.
Second, if done correctly and completely funded, a revocable trust will avoid probate. It allows for the smooth transition of the ownership of assets. If the trust is to terminate on death and be distributed to beneficiaries, the settling of a trust should take less than six months.
Third, a revocable trust allows you to make private provisions with respect to the disposition of your assets. Your wishes will not become part of public record, as they would if your estate went through probate.
Finally, a living trust is a good vehicle for planning for potential incapacity. By specifying a procedure for determining incapacity and then naming a successor trustee, you can ensure the seamless administration of your affairs.
However, revocable trusts have some disadvantages. Initial costs will be higher because trust documents are more complex to draft than wills. Transferring assets to trusts incurs transactions costs. Plus, trusts have ongoing record-keeping and maintenance.
If one of your goals is to avoid probate, placing all of your assets in the trust is crucial. Suppose you die with some assets in trust and some owned by you as an individual. Your estate will be have to be administered through probate to distribute the assets not in the trust.
Most importantly, using a revocable trust has no particular tax advantages. A revocable living trust still faces taxes and settlement costs.
Information provided by Ross Barnett, attorney for Abendroth and Russell Law Firm, 2560 73rd St., Urbandale, 278-0623, www.ARPCLaw.com.