The Use of Revocable or Living Trusts in Your Estate Plan – 8 Common Questions
If you’ve read any materials on estate planning, you’ve likely heard of these trusts. For example, you see a lot on-line, in AARP magazine, and in The Wall Street Journal. There exists a significant amount of commentary and recommendations on using these trusts along with a very simple Will known as a “pour over” Will. While they are very common in many parts of the country, Revocable Living Trusts are not used as frequently in Georgia or Alabama. Most of the commentary on Revocable Living Trusts comes from articles and books written by financial planners or attorneys outside of the Southeast. The primary purpose of a Revocable Living Trust in most states is “to avoid probate”. However, probate is a relatively simple and inexpensive process in both Georgia and Alabama, and several other southeastern states, when you have a proper Will which names an executor, waives bond and waives inventory.
1. What is a Revocable Living Trust?
A Revocable Living Trust, also known as a “Revocable Trust”, or “Living Trust”, is just what it sounds like. It is a trust you create during your life, to hold title to your assets, and of which you may (or may not) be the Trustee, and is revocable by you until your death or incompetency. Upon your death, it generally either terminates and pays out, or becomes irrevocable at that time for the benefit of other beneficiaries. You will often hear Revocable Trusts referred to as a “Will substitute”, as the dispositive provisions in the trust replace similar provisions that would normally be found in a Last Will and Testament.
2. Do I still need a Will?
Yes. Or at least, almost always. The Trust can only dispose of what is titled in the trust at your death. Even with great diligence, there are almost always other assets in your probate estate. If you do not have a Will, any and all of these other assets will pass through the intestate process, which will be more burdensome without a Will. So yes, you should always have a Will even if you have a Revocable Living Trust. Such a Will is known as a “pour over” Will, meaning at your death, any other assets that were not in the trust at your death pour over into the Trust to be administered pursuant to its terms.
3. What is the ‘main’ purpose of a Revocable Living Trust?
The primary purpose of a Revocable Living Trust in most states is largely to avoid probate. In other areas of the country, avoiding probate is, in fact, a very relevant concern due to the costs associated with probate, the time which a probate consumes, and the many hassles that are involved in the probate process in some states. However, probate is a relatively simple and inexpensive process in both Georgia and Alabama when you have a proper Will which names an Executor, waives bond and waives inventory.
4. What are other reasons to use a Revocable Living Trust?
i) Planning for future disability to avoid guardianship and conservatorship; ii) for those who are very sensitive to privacy issues and wish the beneficiaries of their estate to be confidential and not of public record as would be the case with a Last Will and Testament; iii) for those who own real property in several different states; iv) for those who fear a contest to their Will (if the Revocable Living Trust is used, and all assets transferred prior to death, there is no ‘estate’ to probate, and thus no Will to challenge); and v) for those with very significant estates
5. Is it less expensive to have an estate plan that involves a Revocable Living Trust?
The use of a Revocable Living Trust as part of your estate plan is generally more expensive than only doing a Will, as two legal documents are involved: the Revocable Living Trust, and the pour-over Will to dispose of any assets that were not transferred to the trust during your lifetime, as well as additional attorney time to help facilitate the funding of the Revocable Living Trust. Further, if the Trust will hold real property, you will often want to prepare a Memorandum or Declaration of Trust to be recorded with the real estate records, rather than recording the entire Trust.
6. What are common problems with a Revocable Living Trust type estate plan?
The most common practical problem with using a Revocable Living Trust is that all assets are often not transferred during life, necessitating a probate in any event upon death, or creating confusion as to estate assets. Not infrequently, even those who have these Revocable Trusts set up and funded properly do not handle them properly, for example, selling an asset out of the trust, and then buying a replacement asset which ends up not being titled in the trust’s name.
7. Is a Living Trust the same as a Living Will?
No. The two are completely different. A Living Will is a health care document setting forth your final wishes if you are unable to give medical directions. In other words, a Living Will is a type of medical directive.
8. So I shouldn’t use a Revocable Trust, right?
Well, now I didn’t exactly say that. There are certainly situations where a Revocable Trust makes sense, or even makes the most sense. However, in many, if not most, estate plans in Georgia and Alabama, a Revocable Trust is unnecessary, will generally be more expensive than a regular estate plan, and is fraught with opportunities to “mess things up”.
If you are considering a Revocable Trust, please seek competent legal counsel from an attorney who specializes in estate planning. It may be right for you. Or it may be the exact opposite of what you really need, and you will not discern this from online articles or internet based legal document sites.