A revocable living trust is a popular estate-planning tool that you can use to determine who will get your property when you die. Living trusts are “revocable” because you can change them as your circumstances or wishes change while you are alive. A living trust document is a written document, signed by the trust maker and often times a notary public. The document can be fairly simple but needs to be prepared by an attorney. The living trust must list the property in the trust, name a trustee, and name who gets the property when the trust maker dies. The trustee is the person who will take care of the property. While the trust maker is alive, the trustee is usually the trust maker and then a successor trustee takes over after the trust maker’s death.
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After the trust document is made, the trust maker must transfer any property he or she wants covered by the trust into the trust at any time. For many items, this requires simply including a list of property with the trust document. However, titled property (like real estate) must be retitled in the name of the trust. This usually is not complicated or difficult, but it must be done correctly or the titled property could end up in probate.
Most people use a living trust to avoid probate. However, beneficiary designations or transfer on death forms can accomplish the same thing. To avoid probate with beneficiary designations, list someone or a charity as beneficiary, rather than ‘my estate,’ which would cause probate. Transfers on death can be put on your home, land, and life estate, CDs, checking, savings, mutual funds, stocks and bonds. Life insurance, annuities, and tax deferred accounts such as IRA, 401k, 403b, SEP or ROTH IRA can have a named beneficiary. Other benefits of a revocable living trusts are that you can name beneficiaries for property, leave property to young children, reduce the chance of a court dispute over your estate, and avoid a conservatorship. Living wills are usually not public documents and you can keep your document private after death.
In a living trust you cannot name guardians for children, name managers for children’s property, name an executor, or instruct how debts or taxes should be paid.
If you need a trust, more than likely you will need a corporate trustee. Keep your current financial advisor but use an independent corporate trust department. Living trusts are self-governing and not subject to control by others. Some trust companies restrict assets held in trust to proprietary or preselected investments. Some new trustees seek to replace the current assets in your portfolio. This can be a taxable event. Taxation is the greatest threat to preservation of trust assets.
For an independent corporate trust, there are general fiduciary guidelines such as: govern trust, provide continuity, provide oversight, current on state laws, administrator unique assets, instant trust accounting, provide detailed statements and year end reports. Best-case scenario has your financial advisor and your corporate trust administrator working together in the best interest of the trust, if you really need to create a revocable living trust.
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When considering a revocable living trust, be cautious of investment scams advocating unrealistic benefits of a trust. These seminars, workshops or home visits are designed to sell you a living trust, rather than provide objective information. Salespeople often inflate the costs involved in settling an estate, and promote living trusts as THE solution. They are often aggressive in their sales tactics, pressuring you to buy right away or risk losing the “good” deal.
Some scams claim that a living trust will preserve your legacy to your loved ones by helping you avoid probate costs and estate taxes. However, the truth is most people don’t need to worry about probate or estate taxes. They’re often not as bad as salespeople say they are. Most living trusts aren’t designed to avoid estate taxes. And there are many easier, cheaper ways to avoid probate than a living trust.
Another scam to beware of is if the living trust documents (or kit) sold by the salesperson or online are prepared by an attorney. However, pre-printed generic forms are often passed off as custom-made documents. There is often no attorney involved. The package may be overly expensive. The forms may not meet the requirements of state law. And they often don’t include clear instructions on how to fund the trust. Poorly drawn or unfunded trusts can cost you money and endanger your best intentions.