Do you need a Revocable Living Trust?

Revocable living trusts have become a popular alternative to the traditional will as a way to pass property on when you die. Depending on which state you live in and the size of your estate, a Revocable Living Trust may or may not be the answer for you to pass on your assets.

A revocable living trust is an arrangement you make for management and distribution of your property. Like a will, the trust is "revocable," meaning that you can modify or eliminate it at any time.

These trusts are established by a written agreement or declaration which appoints a "trustee" to administer the property, and which gives detailed instructions on how the property is to be managed and eventually distributed. If you want your trust to substitute for probate (court administration after incapacity), you must give the trustee detailed instructions about how to handle these situations, and you should legally transfer substantially all of your property to the trustee. A revocable living trust agreement or declaration is usually longer and more complicated than a will, and transfers of assets to the trustee can be time consuming and expensive.

Any competent adult can establish a revocable living trust. Husbands and wives can establish a trust together, and can provide that their community and separate property assets be held in different accounts.

Usually, any competent adult can be the trustee, including the person setting up the trust. You can appoint more than one trustee, can delegate different duties to each trustee, and can retain the power to remove the trustee and appoint a new one. Appointing an alternative trustee is essential if you are the first trustee and the trust will carry on after you die or become incapacitated.

Establishing a Revocable Living Trust is fairly simple. First, sign a written agreement or declaration. Then, legally transfer all trust assets to the trustee. Deeds, stock transfers, new bank accounts, and other legal documents may be necessary. Assets not formally transferred to the trustee will probably not be considered part of the trust and might still be subject to probate. I suggest using a competent estate planning attorney to help you establish and fund the trust.

Avoiding probate is one of the key reasons to establish a Revocable Living Trust. Probate is the legal process for transferring your property when you die. It is supervised by a court. Probate usually involves validation of your will, appointment of a personal representative, collection of your assets, notification and payment to your creditors, and transfer of your property to the beneficiaries under your will. A revocable living trust avoids the probate process because you collect your assets and transfer them to the trustee before you die. If you fail to do this, you will not avoid probate.

What about taxes and the trust? By itself, a revocable living trust does not avoid income, estate or gift taxes. Standard provisions for saving estate and gift taxes can be included in a revocable living trust or a will. And a federal estate tax return still must be filed after you die if your net estate exceeds $3.5 million in value. You should not set up a revocable living trust just to save taxes.

The exact cost of a revocable living trust depends on how valuable and complicated your assets are, whether standard documents can be used, how many assets must be transferred to the trustee, and whether tax planning is needed. Before you direct an attorney to set up a trust for you, ask for estimates on how much will it cost, how much writing a will would cost, and how much probating your estate would cost. The fee arrangement should be in writing.

A standard revocable living trust package should include the trust document, the transfer of assets to the trust, a "pour-over" will to add any other assets to the trust, and a similar durable power of attorney; it also might include descriptive materials and related legal documents, such as a directive to physicians or "living will."

Below are the key advantages to establishing a Revocable Living Trust:

- Avoidance of probate; specifically, avoidance of expensive multiple probate proceedings when you own real estate in several different states.

- Reduction of delays in distribution of your property after you die, although delays caused by filing an estate tax return cannot be avoided.

- Privacy, because your trust instrument would ordinarily not be filed in court.

- Continuity of management of your property after your death or incapacity, especially if you do not serve as the trustee.

- For married couples with substantial separate property, segregation of those assets from their community property assets.

Call me at (702) 240-4621 to discuss whether or not a Revocable Living Trust is right for you.

Certain information in this article was provided at www.wsba.org.