Even if you’re only slightly familiar with “estate planning,” you’ve almost certainly heard about wills and revocable
living trusts. You may not however, understand the differences between a
will and a trust or the full benefits of a trust.
One of the key benefits of creating a revocable living trust is that it
avoids the probate process. It is not that difficult to establish a trust
and you will have peace of mind knowing that your beneficiaries will not
be entangled in a complicated court-supervised
probate process, which can leave their inheritance untouchable for long periods of time.
Another benefit of a trust – it keeps your personal affairs private.
In the absence of a trust, your will would be a matter of public record
after it was
admitted to probate.
Setting Up a Revocable Living Trust
To set up a
revocable living trust, first the trust agreement is written. The trust agreement involves 1)
the trust-maker, who is also known as the settlor or grantor, 2) the trustee
(person who manages the trust), and 3) the beneficiary of the trust. When
the typical revocable living
trust is created, the trust maker, trustee, and
beneficiary are the same person – the person who set up the trust.
Once the trust is established, the trust maker funds the trust. Meaning,
the trust maker’s assets are transferred into the trust. The trust
maker ordinarily designates the trust as the beneficiary of his or her
life insurance policies, annuities, and retirement accounts.
Real estate is also commonly held in a trust.
As the trustee, the trust maker will manage and invest in the trust and
he or she will use the trust’s assets as they see fit. Once the
trust maker dies, a successor trustee takes over (one named by the trust
maker) and manages the assets in the trust.
“How does a revocable living trust avoid probate?” Once assets
are placed in a trust, they belong to the trust, not the trust maker.
Since the trust maker doesn’t technically own the assets in the
trust, it avoids probate. Therefore, probate is not necessary to transfer
any of the decedent’s property after he or she dies.
Why Would I Want a Living Trust?