What is a living or revocable trust?

A trust is a legal way to own, manage, and distribute assets. Every trust must have four elements: (1) a creator of the trust, called a “settlor” or “grantor” (2) assets, also called a “corpus” (3) a person who owns, manages, and distributes the assets, called a “trustee ” and (4) a “beneficiary,” the person for whose benefit the trust is created. A living trust is revocable. In most revocable trusts, the settlor, trustee, and beneficiary are the same person.

Who does not need a trust?

There are some people who will not benefit from a living or revocable trust. Those who are married with no significant assets and no children who intend to leave their assets to each other, on the one hand. Anyone else who doesn’t have significant assets and has very simple estate plans also doesn’t need a living trust. Finally, anyone who wants court oversight over the administration of her estate should not have a living trust. (The assets stay in the trust, there is no “estate.”) Probate can often be avoided without using a living trust, setting up “pay-on-death” accounts, making beneficiary designations, holding assets jointly , etc.

Why do people create trusts?

By creating a revocable trust, individuals can avoid probate. Also, these trusts avoid guardianships because if you become disabled, there is already a trustee to manage your assets for you. And you won’t have to deal with lawyers and courts. However, revocable trusts can be and are contested, just like a will. And managing a trust after your death is not free. Even if probate is avoided, the successor trustee will seek the help of an attorney to ensure that debts are paid, all necessary tax forms are filed, and assets are properly distributed to their beneficiaries.

What are some misconceptions about these trusts?

Living trusts always avoid probate. After death, the revocable trust will not cut creditors’ claims against the trust assets. Therefore, many times the successor trustee will open an estate anyway to require creditors to file claims within the time required by law or they will be barred from collecting claims against the estate.

Living trusts save state and federal estate taxes. Yes, but there are other taxes.

Living trusts can manage your property if you become disabled. That’s true, but a durable power of attorney is a much less expensive and easier alternative.

Who should have a revocable trust?

People who own property in another state. (Real estate is legalized where the property is located. If you live on a farm in Pennsylvania and also have a vacation condo in Arizona, you will have two wills. A trust avoids this because the property is part of the trust and there is no estate to Probate The trustee manages the trust, including both properties.)

People who are concerned that they may become disabled and that they will be subject to undue influence as a result.

The beneficiaries of the inheritance are disabled.

People live or spend a significant amount of time in a state where probate is time-consuming, burdensome and expensive.