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These articles contain tax and planning techniques that should be reviewed by your personal tax adviser to determine if they are appropriate for your particular situation and comply with local law. We are unable to render legal or tax advice to individuals.


What is a Revocable Living Trust?

A revocable living trust is a legal device that can help protect assets. Revocable living trusts are promoted as an alternative to probate. They can be used to manage your property during your lifetime and to distribute your property, quickly, after your death. Any competent adult can establish a revocable living trust.

How is the Trust established?

A revocable living trust is established by a written agreement or declaration of trust, which appoints a "trustee" to administer the property legally transferred to the trust. It gives detailed instructions on how property is to be managed, and distributed upon death.

What Assets Can Be Included in the Trust?

Assets can include property, deeds, stock, and bank accounts. You can also add life insurance and certain pension accounts paid directly to your trust. Assets not formally transferred to the trust might not be considered part of the trust and might still be subject to probate. Husbands and wives can establish a trust together, and can provide that their community and separate property be held in different accounts. .

How About Trustees?

A bank or trust company is often a good choice to be appointed as trustee, however, any competent adult can be appointed to be a trustee, including the person who set up the trust. You can appoint more than one trustee, can delegate different duties to each trustee, and can retain power to remove any trustee and appoint an alternate trustee. Appointing an alternate trustee is important especially if you are the first trustee and you want the trust to carry on after you die or become incapacitated.

What are the Advantages of a Revocable Living Trust?

There are many advantages of a revocable living trust. Avoiding probate is one of the most significant and valuable features of a revocable living trust. Avoiding multiple, expensive, probate proceedings when you own real estate in several different states is specifically valuable.

Other advantages to establishing a revocable living trust include:

- avoidance of guardianship

- avoidance of conservatorship

- reduction of delays and efficient distribution of your property after you die

- privacy and confidentiality, since terms of your trust would not be filed in court unlike probate which creates a public record; and continuity of management of your property after your death or incapacity.

What is Probate?

Probate is a legal process, supervised by a court, for transferring your property when you die.

Probate usually involves validation of your will, appointment of a personal representative, collection of your assets, notification of and payment to your creditors, and transfer of your property to the beneficiaries under your will. Probate can be an expensive, time consuming, and an inconvenient process.

In order to avoid probate, you must give the trustee detailed instructions about how to handle and distribute property. A revocable living trust avoids the public process of probate because you collect your assets and transfer them to the trustee before you die. The trustee then transfers them your beneficiaries after your death. If you establish a trust but fail to transfer your assets to your trustee, you will not avoid probate.

Another advantage of a revocable living trust is that it is an efficient way to distribute property after you die. Establishing a trust can also help you avoid the additional costs of a conservatorship in the event of your incapacity. Another benefit of a revocable living trust is confidentiality. Generally the terms of your living trust are confidential, unlike probate which creates a public record of assets.

What are the Negatives of a Revocable Living Trust?

A revocable living trust does have some drawbacks. Revocable living trusts can be expensive, and do not eliminate the need for attorneys and accountants. They are usually longer and sometimes more complicated to draft than a will. The exact cost of a revocable living trust depends on how complicated your assets and your estate planning goals are. It is a smart idea to compare estimates of how much a revocable living trust will cost to draft, how much writing a will could cost, and how much probating your estate would cost. You should also consider any fees you might want to pay the trustee.

Revocable living trusts also can require attention and management for an indefinite period of time.

There is also an element of inconvenience to a revocable living trust. Once the trust is established, trust books must be maintained to ensure that all assets continue to be registered to the trustee.

There can also be unforeseen problems. A revocable living trust can raise a variety of new problems regarding title insurance coverage, real estate in other countries, Subchapter S stock, certain pension distributions and other issues.

A revocable living trust is not a good idea just to save taxes. By itself, a revocable living trust does not avoid income, estate or gift taxes. Provisions for saving estate and gift taxes can be included in both a revocable living trust or in a will.

Given this information, you must decide if a revocable living trust is right for you.

It is important that you consult legal advice before you make your final decision. Never take legal advice from anyone not authorized to do so.
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