What is a Will?
A will is a document, which controls the passage of your property upon your death. A personal representative named in your will manages the property in your estate. The personal representative pays any bills of the estate and distributes the property directly to the beneficiaries designated in your will.
If you have minor children, an important function of a will is to name a guardian to care for your children upon your death. You should inform the person you intend to name as guardian of your intention and obtain their acceptance of this important responsibility.
What is Probate?
Probate is the court-supervised process which transfers your assets at your death to the beneficiaries set forth in your will, and in the manner prescribed by your will. At your death, the person named in your will as executor files a petition with the court. After notice is given and a hearing is held, your will is admitted to probate and an executor is appointed. The Executor files a full inventory of the assets held in your name alone at your death. Probate continues until your estate is ready for distribution and the court approves the final distribution of your estate.
Sometimes people think that because they have access to all the bank accounts, it is not necessary to probate the will. This can cause serious problems.
Probate can take more time to complete (6-12months) then the distribution of your trust following your death.
What is a Living Trust?
The concept of the revocable living trust (usually referred to as a “revocable trust” or “living trust”) is similar to a will in that it directs the distribution of assets at the time of your death, but it does so without the involvement of probate court. Your assets are held, administered and distributed in accordance with the terms of the trust by your appointed trustees.
In addition a revocable trust may provide for your care and the management of your assets during your lifetime in the event of disability.
When you create the trust and transfer assets into the trust you are known as the Grantor. You name a trustee, frequently yourself, and the ‘Trustee’ is the person who holds and manages the trust assets in accordance with the terms and provisions set forth in the Trust instrument. The ‘Beneficiary’ is a person(s) for whose benefit the trust was created. It is created and operational while you are alive and it can be revoked or changed at any time by the person who created the trust.
How does the Revocable Living Trust work?
Once the trust agreement is drafted, property is transferred into trust. This is accomplished by changing the title or ownership records of the property to the name of the Trust. However, if you are serving as the Trustee, you maintain full control over your assets, since the Trustee has the responsibility of holding and managing the trust assets. This transfer of assets is called funding the trust. Probate may be required if property is not re-titled in the name of the trust.
During the lifetime of the Grantor, the Trustee administers the trust for the benefit of the beneficiaries. You will typically name yourself as the primary beneficiary to receive the income or principal distributions from the trust, but you may also name other beneficiaries to participate in trust distributions during your lifetime.
Will a Revocable Living Trust avoid probate?
Yes. It’s a major benefit of having a revocable living trust. It avoids probate because the trust owns the property and the trust survives your death. It is possible to avoid probate altogether by transferring all your property in the name of the trust. This allows the property to be distributed quickly upon your death while avoiding the costs and delays of probate.
Are there any other benefits to a revocable living trust?
You mean other than saving certain taxes and probate? Yes, some of the other benefits include:
1. Keeps details of your estate private. The revocable living trust is not part of the public record and remains confidential. Probate record is a public record and everyone has access to your property records and your will.
2. Ownership of property is transferred to yourself as trustee of the trust for the benefit of named beneficiaries therefore giving you full control of your assets while you are alive and competent.
3. Should you become incapacitated Living Trust Arranges for a successor trustee to manage your property thus avoiding being placed under a court appointed guardian if you become unable to manage your affairs.
What are some of the Drawbacks of a revocable living trust?
1. More initial legal fees than required to draft a will. Although will preparation may cost less, it is subject to probate. Creating a living trust is not just the drafting of the agreement but also includes the retitling and transfer of property into the trust. Since a living trust avoids probate it avoids that expense. Therefore, a trust is usually much less expensive than the combination cost of a will and probate.
2. If you hire a professional trustee (you don’t have to), you may be required to pay an annual fee to the trustee. As with a personal representative in a will, the court will order payment from your estate to your personal representative for preparing documents, tax returns, transfers of property and other costs associated with will administration. Moreover the court will also order your estate to pay the fees of the attorney, which could more than what you will pay for getting the Living Trust.
3. Creditors’ can claim against your trust property longer than they can against a will. In probate, creditors must make their claim within 90 days after the notice to be able to collect or all claims are barred. If there is no probate, your property is not protected against claims by creditors for old bills until expiration of the statute of limitations.