There are several different legal mechanisms that allow you to pass your estate on to your loved ones after you die. Many people opt to draft a Last Will and Testament. However, estate death taxes and other considerations can complicate things for families.
While increases in exemptions from estate death taxes have worked in the past for some families, there are alternatives to consider. Revocable Living Trusts, for example, can guarantee a smooth passage of property from decedent to beneficiaries.
A will vs. a revocable living trust
A will is a legal document that details your wishes regarding the distribution of your property and the care of minor children upon your death. Generally speaking, this document outlines which money and assets go to which beneficiaries, who will become your children’s legal guardian (if applicable), and who is in charge of managing your affairs. When you die, a probate court uses your will to help your executor distribute assets and settle any debts that are owed.
Like a will, a revocable living trust is an estate planning tool that determines who will inherit your property. However, instead of waiting until your death and having your beneficiaries go through the expensive probate process to inherit your assets, you can leverage a trust to transfer certain property to a trustee during your lifetime.
Depending on what property is held in the trust, your family may be able to avoid probate administration for these assets upon your death. This is because the trust is considered to be a separate entity that “owns” the assets within.
Most individuals who create a living trust will serve as both the trustmaker (also called a grantor) and the trustee, or the person in charge of managing the property held in the trust. Upon your death, the assets will simply pass to another trustee of your choosing – no probate administration required. The “revocable” aspect of a trust means you can adjust and change the details as your life circumstances or wishes change, making it a very flexible estate tool.
It’s important to note that a revocable living trust is not an alternative to a will. Instead, it’s a planning tool that should accompany a last will and testament.
The benefits of a revocable living trust plan
There are several overall benefits to adding a revocable living trust to your estate plan:
1. Avoid probate
One of the most important benefits of a trust is avoiding probate on those assets, which can save your loved ones time and money. This can also be helpful if you own assets in more than one state/jurisdiction, as your out-of-state property would be subject to the local probate laws.
2. Maintain privacy
3. Manage assets for minor children
If you have minor children, a trust can ensure their inheritance is managed by an appropriate trustee until your children are mature enough to manage it for themselves. It also ensures that your estate does not end up in the hands of someone else through a child’s estate plan should the child inherit from you outright.
4. Ensure your wishes are met if you become incapacitated
One of the important mechanisms of a revocable planning trust is to plan for what happens to your estate, and how you’re treated, should you become mentally incapacitated. Your document can specify how you are determined to be mentally incapacitated and appoint who manages your finances. A will can’t directly specify this.
5. Potentially reduce your estate taxes
Transferring assets to a trust can reduce the size of your taxable estate, which will ultimately save your family from paying higher estate taxes. While most estates aren’t large enough to be impacted by the estate tax (for tax year 2019, the estate tax exemption is $11.4M per individual and $22.8M for married couples), this is an important consideration if you have assets valued above these limits.
Which is right for you?
Not every individual needs a revocable living trust, so it’s important to assess your needs to determine the right course of action. However, if you have minor children, or you are concerned about how your finances will be managed, how your estate will be transferred and who should take care of you in the event of mental incapacitation, then a revocable living trust is a good addition to your will.
Have questions? Contact an experienced estate planning attorney.
While a will is important, a revocable living trust plan can provide you with more options and security. It’s worth looking into with your estate planning attorney.
At the Law Office of Patricia E. Tichenor, P.L.L.C., we specialize in estate planning, probate, and family law for Virginia residents. Contact us today to start planning for your family’s future.