Part One: Three Questions to Ask Yourself to Determine if a Revocable Living Trust Makes Sense in Your Estate Plan
By Molly Carey, Esq.
Undoubtedly, there are many variables to consider when it comes to what kind of estate plan is right for you. Do I need only a basic simplistic Last Will and Testament? Do I need something more comprehensive and complex, perhaps a revocable living trust to ensure my wishes are carried out after my death? To trust or not to trust? The pun is intended and the considerations the question raises are worth your while. A revocable living trust, drafted and funded properly, can provide tremendous value to both you and your loved ones after your passing. But where does one start in determining to trust or not to trust? In this three-part blog post series, I aim to make it as simple as possible in positing three basic questions. If any one of them are answered in the affirmative, you need a revocable living trust in your estate plan.
QUESTION # 1 - DO I WANT TO AVOID PROBATE? - a twofold analysis
Probate is the court process lawyers, judges, and beneficiaries engage in to transfer assets titled in the name of the decedent upon death to the beneficiaries. It is a public proceeding governed by the laws of the decedent’s state. The process can be expensive and time consuming. Often the process means hassle and headache, and if it is your wish that your loved ones sidestep both, then a trust could be the answer. It is the estate planning vehicle by which one can transfer his or her assets to beneficiaries after death without the need for a probate court’s involvement.
Notably, I say “a trust could be the answer”. That’s because such a question begs another question. Remember that probate is only needed when there are assets owned in your name, and by extension thereof, owned by your estate upon your death. The probate estate, by its very nature, is limited to those assets that have not passed to your beneficiaries upon your death by operation of law or contract. For example, if upon death, your assets are comprised of your home that you and your brother own with rights of survivorship, your 401k that names your kids as designated beneficiaries, and checking and savings accounts owned in your name that also name your children as beneficiaries, then you do not have a probate estate. The home owned jointly with you brother became his alone by operation of law upon your death. The 401k and bank accounts, per contract, are now payable to your children upon presentation of your death certificate. There is no need for a court’s intervention to effect the transfer of these assets. In this scenario, a revocable living trust is not going to prove essential in the estate plan.
Now for clarity’s sake, let’s say that in addition to the above assets owned jointly and assignable per contract, you are also a psychologist and sole practitioner of your sole proprietorship. You also own an investment property in the name of your LLC. You have a brokerage account with $5,000.00 sitting in it, a savings account that you have not named a beneficiary on, and a collection of vintage Chanel bags worth $20,000.00. In this scenario, having your trust own your business, investment real estate, brokerage account, savings account, and valuable bag collection makes a lot of sense if you like the idea of eliminating the probate court’s involvement. Upon your death, your successor trustee will take control of the trust and transfer interest and principal of these assets to your beneficiaries in accordance with the plan of distribution set forth in the trust terms. You have successfully eliminated the hassle and the headache inherent in any court case, not to mention the expense of attorney’s fees that can eat away at the estate.
Stay tuned for posts on essential questions numbers 2 and 3 in determining whether a revocable living trust makes sense in your estate plan!