Which is Better? Will vs. Trust
The use of a revocable trust (sometimes referred to as a “living trust” or “family trust”) to plan one’s estate has become very popular. Despite the popularity of the revocable trust, revocable trusts are not without their potential problems. In trying to decide what to use for your estate plan, you should know some basic information about a trust.
First, it is important to understand that there is no definitive answer as to whether a trust is necessary. Another estate planner explained that asking whether a revocable trust is good or bad is like asking whether a wrench is good or bad. It depends on what you are trying to accomplish. A trust is just an estate planing tool. Whether it is good or bad depends on your needs and desires.
Although there are many factors to consider in determining whether a revocable trust is right for you, here are a few of the more significant factors:
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Avoiding Probate. It is true that a properly funded trust avoids probate. If the goal of the client is to avoid probate, it is critical that the trust be properly funded. To “properly fund” a trust, title to all assets and beneficiary designations for insurance policies and retirement accounts must be reviewed. A properly funded trust avoids probate because the owner of the assets (generally termed the trustor, settlor, grantor or trustmaker in the trust document) conveys ownership from him or herself (in his or her individual capacity) to him or herself as trustee of his or her trust. Probate is avoided because for “probate purposes” the deceased person does not own assets but rather the trustee of the trust owns the assets. It is critical to understand that a revocable trust only avoids probate if the assets have been properly transferred to the trust.
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Out of State Property. A revocable trust is especially useful if you own real estate in another state. Real estate in another state generally requires a probate proceeding in that state. If you live in one state but own real estate in another state, your beneficiaries may be required to commence multiple probate proceedings. This situation can be avoided through the use of a revocable trust.
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Avoiding Court Appointed Conservatorship. A properly drafted trust should provide for the management of trust assets in the event the person contributing the property to the trust becomes incapacitated. This would avoid the need for a court appointed conservator for financial matters.
In conclusion, a revocable trust is an important estate planning tool. Depending on your individual situation and desires, you may decide to use a revocable trust as your principal estate planning tool. As in all estate planning decisions, being educated about your choices is key in deciding whether a revocable trust is right for you.
