While getting older people do think of their retirement and plan accordingly, however, they avoid planning their estate which is equally important during and after their life. While having a proper retirement plan helps you to plan your choice of life after your retirement, the estate planning helps you to manage and secure your family and assets during and after your life.
Estate planning is equally important for everyone irrespective of your age and wealth, however, every individual needs different estate plan accordingly and it should be thought and implemented carefully after discussing with an estate planner. Though most people think of drafting a will, however, if you are worried about how the beneficiaries will handle their share then you can opt for a revocable living trust.
A living trust is a written agreement that allows a person to place his/her assets in it with a set of guidelines that determine the management of the estate during and after his/her life. The person setting up the trust is called a granter/benefactor while the person handling the trust is called a trustee who could be a person(s)/ bank, etc. appointed by the benefactor or the benefactor himself. You can designate the heirs who will get the assets after your demise and a successor trustee who will be responsible to handle the trust in the absence of the trustee.
Living trust comes into force as soon as it is signed. After this, the properties are placed in it after which the ownership of the assets transfers from the granter to the trust. As the trust becomes the new owner of the assets, thus they avoid probate after the granter’s demise.
The two types of trust include a revocable living trust that permits you to have full authority over it and can even revoke or amend it, whenever you want to on the other hand an irrevocable living trust restricts your control and prevents cancelling it after signing the documents.
Benefits of Revocable Living Trust-
Revocable living trusts (RLT) come with several advantages and disadvantages while the most important benefit is avoiding probate, other advantages like privacy protection, etc., make it a smart choice. Advantages are:
Avoiding probate: As the assets are owned by the trust only, hence the owner is still there even after the demise of its owner and the assets are dispensed to the heirs designated by the granter without the involvement of the court. The probate is a time and money-wasting process which can be troublesome for the loved ones of the granter.
Flexibility: An RLT allows the granter to make amendments or even cancel the trust itself according to the benefactor’s wisdom.
Privacy protection: As trust avoids probate, it ensures the privacy of the granter’s assets after his/her demise as passing through probate brings the estate in the public record which becomes accessible to all. Trust documents are never filed in court and hence ensure privacy.
Prevent challenge to the estate: Any family member can challenge the will in the court while by an RLT you can specify to disinherit the person who challenges your wishes after your demise.
Asset decomposition: A trust can help you separate the substantial separate assets from the mutually owned assets.
Eradicating a durable power of attorney: Well, In this case of incapacity or the death, the trust helps you to gain control of the expenses done by a guardian, in the interest of the minor. It also authorizes a person to make decisions for you in such cases. Also, the trustee manages the financial affairs without the requirement of the durable power of attorney.
Minimizing the estate tax: Well, by adding some provisions in the RLT documents like credit shelter trust, a trust can be very effective in tax reduction for large estate taxes.
Disadvantages of Revocable Living Trust-
Expenditure planning: Setting up a trust is a very expensive process as it requires legal help
To update the documents: Just like a will, you need to update the trust documents and records according to the major life-changing events like birth, death, divorce, etc. and thus review them annually too to review the trustee, his power and duties. Also, it is mandatory to add future assets in the trust as well.
Renaming the ownership of the property: You should ensure that your chosen property must be renamed in the name of the trust. Also, this is an extra step that requires additional time and money.
We have summarized the pros and cons of a revocable living trust you let you understand and assist you to decide if you want to opt for it or not. However, we will suggest you to discuss with an attorney to understand if it will be beneficial for you and your assets.