A revocable living trust is an integral part of many estate plans. Its main purpose is to give you more control over how your estate is handled both before and after death while allowing your estate to avoid a lengthy probate process.
The idea of a revocable living trust is fairly simple: it becomes the owner of any assets you – the grantor – put into it. A trustee (typically also the grantor) is named to administer the trust and manage its assets. If at any time you feel the need to step down as trustee – maybe you can’t make it to the bank as easily anymore or just don’t feel like handling each aspect of your finances – the responsibility will turn to a successor trustee, who is someone you named in the trust to take over administration when you choose not to handle it anymore. The successor trustee can also take over in the event of your death, which will easily allow them to manage your assets that would otherwise be tied up in the probate courts until the estate is settled.
While this all sounds great, keep in mind that there are some mistakes that can come with setting up your trust which can ultimately be difficult to fix. Here are the top five mistakes you should avoid when making your revocable living trust:
Not including the right assets
As noted above, the main reason to create a revocable living trust is to avoid the probate process. As a rule, any asset that is solely held by a decedent has to go through probate, while any jointly held or trust-held asset does not have to go through the process. However. owning assets jointly does not completely avoid probate, it merely “kicks the can down the road” until the passing of the surviving owner. So in many cases, you will still want to name your trust as either an owner or a beneficiary on jointly-owned assets such as a home or checking account.
Assuming you’ll be protected from estate taxes
Revocable living trusts do not protect estates from estate taxes. There are different kinds of irrevocable trusts available for that purpose, such as a credit shelter trust and marital life estate trust. These are much more complex trusts and require the experience of a trust lawyer, which brings us to our next point…
Using a DIY trust maker
Many families have seen the effects of creating DIY trusts; namely, they don’t often work. Trusts must follow a strict set of guidelines that are set by the state and federal governments, and any trust that does not follow these guidelines is not worth the paper it’s printed on. An experienced trust lawyer is the perfect resource for finding out if a revocable living trust is right for you and can craft it to meet your needs.
Creating a trust but not a will
Here’s an important note to keep in mind: a trust does not take the place of a will. In fact, a will (called a pour-over will when used in conjunction with a trust) is needed to control any assets that may not have made it into your trust. If you pass away without a will, then your estate will be distributed to beneficiaries as decided by the law – not necessarily the way you would want it.
Saving money now vs. saving money later
We get it – trusts can be expensive, especially compared to a very basic estate plan package. However, the extra cost today could end up saving your family and estate a serious price tag later when probate fees, time, and resources are all added up. A trust simplifies the process and is well worth the cost to whoever administers your estate once you’ve passed on.
If you want to learn more about creating a revocable living trust, or if you currently have a revocable living trust and would like to have it reviewed to ensure it still fits your needs, please give us a call at 941-909-4644 or 763-420-5087 to set up a complimentary estate planning strategy session.
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