Revocable Living Trust
A living trust is a written declaration and contract in which you ("grantor") transfer your property into a living trust for the benefit of yourself during your lifetime (lifetime "beneficiary") and then for the benefit of your heirs (remainder "beneficiaries"). During your lifetime, you will be the "trustee" of your living trust which means that you maintain complete control over the living trust's assets. The "successor trustee" will take control over your living trust in case of your death or incapacity. In addition, you maintain the power to change, amend or revoke your living trust at any time during your lifetime.
The main advantage for a living trust is the avoidance of probate. Probate is a state court proceeding in which your property is transferred to your heirs. A previous post, How long does it take to probate in Florida, discusses the time involved in the Florida Probate process. Since probate only affects assets which you own at the time of your death, assets placed in a living trust are not owned by you, therefore, there is no probate on those assets. The cost to Probate will range from a percentage of the value of probate assets to an hourly fee.
Further, probate is a court proceeding, your Will will be filed with the local Clerk and become part of the public record. A living trust, however, is confidential and the transfer of assets from the living trust is kept from public view. When the grantor of a living trust dies or becomes incapacitated, the successor trustee administers the living trust without a "gap" period. Under a probate proceeding, there is a "gap" period between the time of death and the appointment of an executor.
It may sound like the Revocable Living Trust is a great option for everyone. However, in order for a Revocable Living Trust to work, all assets which are to be held in the living trust must be transferred into the living trust. This list includes, but it not limited to:
- Real Property Deeds (lien holders must consent)
- Bank Accounts
- Partnership and Stock interests
A living trust is also more expensive in up front costs due to drafting the document and implementing it.
Last Will & Testament
A will is a legal document that lets you tell the world who should receive which of your assets after your death. A will only takes effect upon death of the person, therefore, nothing is transferred or administered prior to death. Without a will, the courts decide what happens to your assets and who is responsible for your kids in accordance with the Probate code.
An advantage of a will over a living trust is that probate estate is a separate taxpayer and can select a fiscal year end. Also the decedent's creditors have a short statute of limitations time period to bring claims in a probate. Once the period for claims has passed, those creditors are barred from asserting claims against the heirs.
A will also allows you to name your executor, the person who will be in charge of your estate. Before you select an executor, make sure you understand the tasks he or she will need to perform, which include distributing your property, filing tax returns and processing claims from creditors. Your executor should be someone you trust completely and is willing to take on such a big responsibility.
There are limitations to wills. It is important to know that the beneficiary designations on financial accounts, insurance policies and other assets take precedence over wills. Make sure your beneficiary designations are up to date and reflect your current desires.
There is not one answer for everyone. The important thing is to have a plan, seek the advice of an attorney, and make sure that your wishes will be carried through.
There are many facets to a Revocable Living Trust and a Will that were not covered in the above post. This post is meant to serve as a basic explanation of the difference between the two types of estate planning.