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How implementing a Living Trust helps you get planning right.

Clients often ask me what estate planning documents they will need beyond a Last Will and Testament. While no two plans are the same, I frequently suggest adding a revocable living trust to a comprehensive estate plan. Understanding how a trust might fit into your planning should help you get the planning puzzle right. 

5 Reasons to Create a Revocable Living Trust

  1. To help your estate avoid probate. Probate is the legal process that is  required for the administration of the assets controlled by your Will following your death.  Probate serves several important functions, including ensuring that your estate assets are identified and distributed, notifying creditors and allowing them to file claims against your estate, and paying any taxes due from your estate. Unfortunately, formal probate can take a very long time to complete and can be very costly. Consequently, the estate that is eventually distributed to loved ones may be significantly diminished and your loved ones may have to wait months – even years – before they receive their inheritance.  Furthermore, these delays come at a cost, both in terms of fees paid to the court and professional fees associated with the court process.  It should come as no surprise, therefore, that probate avoidance is a popular estate planning goal.  Your Will does not control all of your assets at death, and thus not all of you assets have to go through Probate.  In fact, one significant component of estate planning is being careful and even strategic about what legal arrangement you wish to use to control your assets at death.  Without a doubt, a revocable living trust is the best alternative to Probate.  
  2. To plan for the possibility of your own incapacity. When most people think of estate planning they think in terms of planning for their eventual death and the subsequent distribution of their estate assets. Planning for the possibility of your own incapacity, however, should be equally important. If you were to become incapacitated tomorrow, who would take over control of your assets and finances? Without a plan, you can’t know the answer to that question with complete certainty. A revocable living trust helps you create that plan. It works by allowing you to name yourself as the Trustee of the trust, allowing you to control trust assets as long as you are able to do so. You name the person you wish to take over control of those assets as the successor Trustee. If you become incapacitated, control shifts to the successor Trustee automatically.  Even better, a revocable living trust is without a doubt the best way to share control with another person.  Imagine that as you age, you become less mentally sharp.  You’re nowhere near incompetent, but you would appreciate some help from someone you trust.  Elevating that successor Trustee to the position of Co-Trustee — with you — is a great way for you to continue to be in charge, but to share control without risk.  Your assets are not exposed to the creditors of your co-trustee, they can use the assets only as your specify, and should you become incapacitated, they are already in place to manage your affairs. 
  3. To help protect and grow an inheritance intended for children. If you are the parent of a minor child, or an adult child who sometimes does not make adult decisions, extra care most go into estate planning.   Even young adults who make great decisions might not be well served by inheriting a significant amount outright and with no guardrails to protect them.  Your Trust Agreement can create inheritance trusts which arise upon your death to provide asset protection or third party management (for minors or poor decision makers).
  4. Protecting your assets. Asset protection should be a consideration in every estate plan because there are likely more potential threats to your assets than you realize. Divorce, economic downturns, creditors, and even spendthrift beneficiaries can all create a threat to your hard-earned assets. By transferring assets into the kind of inheritance trust you protect the inheritance for these beneficiaries.  You might also transfer assets into an irrevocable trust during your lifetime, thus removing those assets from your estate and placing them out of the reach of the numerous threats that could be lurking around the corner. The concept is simple. If you no longer have any legal ownership interest in the assets because they are now owned by the trust, they cannot be lost to divorce, creditors, or any of the numerous other potential threats.  You, nevertheless, can define in the Trust Agreement who controls the assets, how they are used and what happens in the future.  
  5. Flexibility.   I am frequently asked by clients about the flexibility of their legal documents when it comes to implementing changes to planning in the future.  I hear in their questions some concern that planning with a revocable living trust will make this more complicated.  The opposite is true.  At Clarity Legal Group, we build into our trust agreements a number of mechanisms which make modification of decisions about bequests particularly simple.  The Trust form also allows for more flexibility when it comes to accounting for how assets passing outside of the Will or Trust such as a tax deferred retirement account impact shares created under a beneficiary in the legal documents.  For example, we don’t know how much is going to pass to the beneficiaries of our IRA or 401k because we don’t know how much will be in the account at death.  If someone want to leave a gift to a particular person of some percent of all of their assets passing at death, including the retirement accounts (as opposed to just the assets passing under the Will or only the assets passing under the living trust), this creates complexity and potential administrative burdens which simple don’t exist when the same instruction appears in the trust agreement.  

Contact a Raleigh, Durham, Chapel Hill area Trust Attorney

If you have additional questions or concerns about including a trust in your estate plan, please contact a trust attorney at Clarity Legal Group® by calling us at 919-484-0012 or contact us online.

Mark Costley
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Date: Category: Trusts