Benefits of Revocable Living Trusts
In general, an individual may use either of two alternative approaches in creating a comprehensive plan for the disposition of assets on his or her death. First, an individual may adopt a plan that relies on a will to provide for the disposition of assets on death. Second, an individual's estate plan may rely primarily on a revocable, living trust to provide for disposition of the assets. A revocable, living trust may enable an individual to achieve important estate planning objectives. As an initial matter, a revocable, living trust may provide an effective mechanism for managing the settlor's assets if he or she becomes incapacitated. In addition, the transfer of assets to a revocable, living trust generally results in avoidance of the estate administration process as to the assets held in trust on the individual's death. The use of a revocable, living trust also generally enables an individual to maintain the privacy of the provisions governing the distribution of his or her assets on death because state law does not normally require the filing of the trust document among the records of the court.
A person may create a revocable, living trust by declaring that he or she, as trustee, holds property in trust or by transferring property to another person as trustee. The document used to create the trust may be known as a "declaration of trust" when the settlor names himself or herself as trustee. The document may be referred to as a "trust agreement" when the settlor names another person as trustee.
The settlor of a revocable, living trust has the power to reacquire the assets that are held in trust. The settlor may revoke the trust and regain possession and title to the trust property upon revocation. In most cases, the settlor may also direct the trustee to distribute all or any part of the assets to the settlor.
In estate plans that utilize revocable, living trusts, the settlor frequently appoints himself or herself as the trustee of the trust. As the trustee, the settlor retains direct, ongoing control over the management of the assets that are held in trust.
A revocable, living trust cannot necessarily address all of the issues that may arise on the individual's death. For example, on the individual's death, the trustee of the individual's revocable, living trust has authority only over the assets held in the trust at the individual's death, not over assets that the individual held in his own name. A will is necessary to provide for the disposition of assets owned directly by the individual.
Because a living trust is unable to address all issues, estate plans that include revocable, living trusts normally also include pour-over wills. A pour-over will typically requires the executor to distribute all or substantially all assets of the estate to the trustee of the revocable trust. In turn, the trustee of the revocable trust distributes the assets to the beneficiaries of the trust.
An individual frequently must decide whether to use a will or a revocable, living trust as the primary estate planning document that provides for the disposition of his or her assets on death. In deciding whether to utilize a revocable, living trust, it is advisable for an individual to identify the costs that will be incurred and the benefits that will accrue as a result of adopting a plan based on a living trust. The individual should then compare the costs and benefits of a plan that uses a living trust with the costs and benefits of a plan that relies on a will. When a person is considering the use of a revocable, living trust, a sound decision will require an analysis that takes into account the unique circumstances present in that person's situation.