When creating your estate plan, it might be necessary for you to consider a revocable living trust as part of your plan. In Texas, the probate laws can be fairly efficient (depending on your family make up and dynamic); however, other times they can seem complex and potentially detrimental to the value of your estate should you die without suitable protections in place.
In this article we are going to address some commonly asked questions on what a revocable living trust is, the advantages and disadvantages and some other items to consider.
What is a Trust and what is a Revocable Living Trust?
First, think of a trust like a “box” that holds assets. They are legal not entities but a document that is established for the purpose of holding assets. A trust is created when one person (called the Trustor, Settler, or Grantor) transfers to another person or entity (called the Trustee) an interest in an asset to be held for the benefit of a beneficiary. If the trust is created during the Grantor’s lifetime, rather than in his or her will, it is called an intervivos (during life) trust. When the Grantor retains the right to dissolve the trust, it is called a revocable trust. Conversely, if the Grantor does not have the right to change or dissolve the trust, it is irrevocable. A revocable living trust often becomes irrevocable once the Grantor dies.
Once the revocable living trust is established, you must transfer the title of your chosen assets to the trust. That way the assets will be governed by the terms of the trust. Those assets will remain in the trust and the provisions in the trust dictate when or if something happens to them (such as death or incapacity).
You must also designate a trustee to manage your assets and name anyone who will be a beneficiary. The trustee’s job is to administer the trust based on the formal instructions outlined in the legal documents required to establish the trust. You may make changes or revoke a living trust at any time prior to your death, as long as you have capacity and the trust does not provide otherwise.
What are the Differences Between a Revocable Living Trust and a Will?
The primary difference between a revocable living trust based estate plan and a will only based estate plan is the avoidance of probate. In Texas, it is generally not overly difficult or expensive to probate a well drafted will (like it often is in other states); however, many people create a revocable living trust to avoid the time, delay and headache that the probate process can sometimes bring. For any assets owned by the revocable living trust at the time of your death, they will pass to the beneficiaries listed in the manner specified in the revocable living trust, without probate. If the assets are titled in the name of the revocable living trust and the Grantor dies, a successor trustee simply steps in and is able to transfer the assets according to the instructions outlined in the trust agreement.
Privacy is another difference between a revocable living trust and a will. Wills and probate proceedings are made public and anyone can view the details of your specific wishes, sometimes your assets (if certain requirements are not met, an inventory has to be filed during the probate process that lists all of your assets) and who you have listed as your beneficiaries, however, trusts are not public record. Some people are very intent on their final wishes being a private matter. They do not wish for their will and the assets governed by the will to be of public record. For example, if a person has a large estate, is leaving a bequest to a non-family member (or disinheriting a family member), or does not want a person in their life to have information regarding the administration of the estate, a revocable living trust may avoid this information becoming of public record.
What are the Possible Disadvantages of a Revocable Living Trust?
The most commonly discussed disadvantage of a revocable living trust involves the fact it requires more time and effort from the attorney and the client to create the trust and fund the trust. In other words, after the attorney has drafted the trust and the client has signed it, the client and the attorney must work together to fund the trust. Funding is the process of placing assets in the name of the trust. Often, the revocable living trust based estate plan can be more expensive to create and fund correctly than a will only based estate plan (however, a revocable living trust can save in administration expenses after the death of the Grantor).
Do I Still Need a Will if I Have a Revocable Living Trust?
Yes. A pour-over will should still be a document prepared when using the revocable living trust. A pour over will allows assets which were not placed into the trust before your death, or assets received after your death, to “pour-over” into and be administered pursuant to the terms of the revocable living trust. If all your assets are owned by the revocable living trust or pass to the revocable living trust via a beneficiary designation or pay on death provision, then the pour-over will would not require probate. The pour-over will is prepared just in case an asset was overlooked from being put into the trust before your death.
What about property located outside of Texas?
People who own real property outside the State of Texas may be able to avoid the ancillary probate of that property by placing the property into a revocable living trust. Generally speaking, ancillary probate involves hiring another attorney in the state where the real property is located and the property is subject to that state’s probate laws. The probate process differs from state to state but usually involves filing a certified copy of the probate with a congressional certificate in the county, parish, or township where the real property is located. It may also require an oral hearing. The expense and time associated with ancillary probate varies widely from state to state. It is usually ideal to avoid an ancillary probate and a revocable living trust may be a good choice to do so.
Why are Revocable Living Trusts Recommended for complex estate planning situations?
It is often recommended to utilize a revocable living trust to avoid any unnecessary delay in the management of a person’s estate for our blended families, nontraditional families, business owners, and moderately wealthy to wealthy individuals. Having a will admitted to probate, especially if the will is challenged or was not drafted property, can take significant time in the probate courts. Further, privacy is a critical concern for many business owners and moderately wealthy clients. Additionally, if a person anticipates a will contest, they are likely better off creating and funding a revocable living trust because the trust is not of public record and no person has the right to know of its contents besides the trustee, the beneficiary, the IRS, and other interested persons; but also, it is often more difficult to contest a trust as opposed to a will.
Does a Revocable Living Trust help in the instance I become incapacitated?
Probably. If you become incapacitated, the successor trustee of your revocable living trust will manage the trust. You will remain the beneficiary of the trust. Since it has been more common for some institutions to accept authority under a durable power of attorney if it is more than a few years old, the revocable living trust is often used to plan for individuals who will likely become incapacitated.
How To Fund a Revocable Living Trust
Once you have signed your revocable living trust, your attorney should supply you with a funding packet that outlines a list of your assets and provides instructions regarding how to place each asset into the trust. The Hoggatt Law Firm can help guide you through the funding process. Procedures for funding can be different depending on the type of asset.
Will the revocable living trust protect my assets?
No. Since you legally still own these assets, and your social security number is still used, someone who wins a verdict against you can likely gain access to these assets. However, there are other options, such as an irrevocable trust or entities, to protect your assets from civil suits.
——
Please reach out to The Hoggatt Law Firm, PLLC if you feel that we could assist you with any of the legal matters discussed in this article. The Hoggatt Law Firm, PLLC is ready to assist you with your estate planning, probate and business’ legal needs.
The Hoggatt Law Firm, PLLC presents the information in this article for general education purposes only. Although this article discusses legal issues, it is not legal advice. The law and the content may have changed since this article was written, and The Hoggatt Law Firm, PLLC makes no warranty or guarantee about the continuing accuracy of the information presented. Use of this article does not create an attorney-client relationship, and The Hoggatt Law Firm, PLLC does not represent you unless and until we are expressly retained in writing.