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Wednesday, May 31, 2017

What is a Revocable Living Trust?

A revocable living trust is the foundation of the modern estate plan.  Properly drafted, it offers complete asset control during your lifetime and provides for you and your loved ones in the event of incapacity.  Upon death, it allows you to pass your assets to loved ones without the costs, delays, and publicity associated with probate administration.

In order to understand the benefits of a revocable living trust, we must contrast it with a will. Basically, a will is a testamentary document which only takes effect upon your death.  Administration of your will generally requires supervision by the probate court.  Because of case backloads and court staff shortages, we are finding that this process can take up to 18 months to complete.  Keep in mind that until the process is complete, no assets can be distributed or property sold without the permission of the court.  

On the other hand, a revocable living trust is effective at the moment it is signed and assets are transferred to it.   Both a will and a revocable living trust provide instructions for the distribution of your assets upon your death. But unlike a will, a revocable living trust also directs the management of your assets during your life and, if properly funded, avoids the need for probate administration at your death. Should you become incapacitated, your “Successor Trustee” will simply continue to manage your assets without court intervention or supervision, and continue to do so after your death.

Even if you have created a revocable living trust, you should still have a special kind of backup will, called a “pour-over will.”   This document provides instructions for anything you own at death that was not transferred into your trust, stating that it gets “poured over” into your trust.  This ensures that the instructions in your trust will ultimately control distributions to your loved ones.

It is important to repeat that by transferring assets to your revocable living trust, you maintain control of those assets during your life and effectively avoid probate administration after your death.  All of your assets will be distributed  according to the instructions you leave in your revocable living trust. Although a trust settlement process is still necessary, it does not involve the time, delay, and expense of probate administration.  Trust settlement remains private and does not become part of the public record.

A properly drafted revocable living  trust should contain all provisions required for the management of your assets and for ultimate distribution after your death. A complete estate plan design should also include a pour-over will, a durable power of attorney, a certification and affidavit of trust, a health care power of attorney, a living will and a HIPPA release.


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