One of the questions I get most frequently is, “Do I need a revocable living trust?”
And my answer is, “It depends.” I know. That’s not a very satisfying answer, but its not a simple question.
Whether or not you need a revocable living trust depends on your circumstances, needs and wishes.
There are many reasons that a revocable living trust may make sense for you. Here are three of the most common.
1. You want to avoid probate
One of the most attractive features of a revocable living trust is that it can help your estate avoid probate.
I have clients who want to avoid probate at all costs to make things simpler for their family after they are gone.
So, a revocable living trust makes sense for them.
That’s because any assets that are transferred into a revocable living trust aren’t probated. Instead, your successor trustee steps into your shoes and handles the distribution of your estate without court involvement.
He or she will pay any bills for your estate (such as funeral costs and hospital bills) and will distribute your estate to your beneficiaries pursuant to the wishes stated in your trust.
However, to ensure that your estate avoids probate, all of your assets that are subject to probate must be transferred into your trust before your death (some assets, such as life insurance and retirement accounts that have payable on death designations aren’t subject to probate and don’t need to be transferred into your trust). If there are any assets that are subject to probate that weren’t transferred into your trust, then those assets will end up in probate.
In addition, if your estate has any creditors, then it may still go through probate.
Your successor trustee must ensure that all creditor claims are either paid or are no longer valid prior to making any distributions to your beneficiaries.
Known creditors are generally not an issue. If there are known creditors with valid claims, your successor trustee can pay them without court involvement while he or she administers your trust.
However, if its possible that there are unknown creditors lurking, then it may make sense for your estate to go through probate – although the probate will likely be a much simpler process than a formal administration of your estate.
This will ensure that any such claims are cut off in advance of the two-year statute of limitations for creditors’ claims. This may not seem like a big deal, but the statute of limitations can be reduced from two years to 90 days through probate.
And if a creditor with a valid claim suddenly appears after all of the assets from your trust have been distributed to your beneficiaries, but before the two-year statute of limitations has run, then your successor trustee could be liable to that creditor.
2. You own a business
A revocable living trust not only provides for the distribution of your assets upon your death, but if you become incapacitated, either temporarily or permanently, your successor trustee steps into your shoes to manage your assets during your incapacity.
So, if you have a business, and your interest in the business is transferred into your revocable living trust, your successor trustee will manage your business interest for you.
For example, if your business is a sole proprietorship or single-member limited liability company (meaning you are the only owner of the business), then your successor trustee can manage the business for you, including writing checks to vendors and making sure there are no payroll delays.
If you own a business with others, such as in a multi-member limited liability company or corporation, then your successor trustee will manage your interest in the business according to the governing documents for that business (for example, a membership or shareholder agreement).
Your successor trustee will also follow the specific instructions in your trust for how your interest in the business will be handled when you die.
3. You own property in more than one state
If you own property in more than one state, then a revocable living trust will help you avoid multiple probates in different states.
For example, if you live and own most of your property in Florida, but also own real estate in Indiana, then when you die two probates will be needed – one for your property in Florida, and one for the real estate in Indiana.
This will cause additional time and expense, and will also make it more difficult for your personal representative (also known as an executor in other jurisdictions) to efficiently administer your estate.
However, with a revocable living trust, you can avoid multiple probates as long as you transfer all of your property, including property you own in other states, into your trust. Then, when you die, your property will be distributed directly from your trust to your beneficiaries, rather than through one or more probates in different jurisdictions.
These are just three reasons that a revocable living trust may make sense for you. Again, whether you should have one depends on your circumstances, needs and wishes.
The best way to determine whether a revocable living trust is right for you is to discuss your situation with an estate planning attorney. And, if you’re ready to find peace of mind through proper planning, feel free to give me a call (904-201-4149) or shoot me an email (steve@zakrockilaw.com). I’d be happy to meet with you and discuss your options.
