A revocable living trust is an estate planning tool that allows you to determine how your assets will be managed while you are alive and after you die. If you set up this type of trust, you will transfer property, like your house or bank account, into the trust, and a trustee will manage that property on your behalf or the behalf of your beneficiaries.
This type of trust is referred to as a living trust because it is created while you are living. It is referred to as a revocable trust because you can alter or eliminate the trust while you are alive.
The trustee of your revocable living trust can be someone you trust to manage your property, such as a spouse, adult child, sibling or close friend. Alternatively, you can make yourself the trustee, and list a trusted person as a successor trustee.
What benefits can a revocable living trust offer?
Like any estate planning tool, setting up a revocable living trust has both benefits and drawbacks. Some of the benefits to a revocable living trust, include:
- Avoiding probate, which is a public proceeding that often tends to be expensive and time-consuming, especially if you own property in more than one state. In contrast, a revocable living trust is a private way to have your assets distributed relatively quickly.
- Avoiding guardianship and conservatorship proceedings if you become incapacitated. Naming a successor trustee can eliminate the need for guardianship and conservatorship proceedings, which can cause a delay in your care or in the management of your assets.
- Allowing control over the timing of payments to beneficiaries. This can be especially helpful if your beneficiaries are minor children or are unable to manage money well because you can have the assets dispersed at intervals instead of all at once.
Are there any downsides?
While there are several benefits to a revocable living trust, there are also several drawbacks. The drawbacks can include:
- Potentially high upfront costs. While the upfront costs can be higher than the costs associated with creating a basic will, you will have to evaluate your personal situation because these costs may or may not be offset by the money saved avoiding probate proceedings.
- Funding it can be complicated. There can be a lot of paperwork associated with a revocable living trust, which can be confusing for people. However, the amount of paperwork will depend on the type and number of assets that must be added to the trust.
- You will still need a will. Those who choose to use a revocable living trust typically also use a pour-over will to ensure any assets that did not get added to the trust get moved over after their death.
Which estate planning tools you utilize is ultimately a personal decision. Only when you consider the pros and cons of a revocable living trust will you be able to determine if it is the right tool for your situation.
