Sometimes people overlook estate planning tools that can be very useful for them, because they harbor certain misconceptions. One of these ideas is the notion that you lose control over assets that you convey into any type of trust. This is not the case when it comes to revocable living trusts.
If you convey assets into a revocable living trust, you do not lose control. The person creating the trust is referred to as the grantor, and the grantor will typically act as the trustee and the beneficiary at first. The trustee handles the business of the trust, and the beneficiary can receive monetary distributions from the trust.
Because of this arrangement, complete control is retained, plus, the grantor of the trust could revoke the trust entirely. It would no longer exist, and the assets that were in the trust would once again become the direct personal property of the grantor.
The control is absolute when there is a revocable living trust in place.
This being stated, there is a level beyond lifetime control. After all, you are creating the trust for a purpose. The ultimate goal is to get the assets that remain in the trust into the hands of your loved ones after you die. To make this happen, you name a successor trustee to administer the trust after your passing, and you name successor beneficiaries.
When you create the trust declaration, you leave behind instructions that the trustee must follow. After your death, the trustee will follow these instructions and distribute assets to the successor beneficiaries in accordance with your wishes.
These distributions would not be subject to the legal process of probate. If you die without any estate planning documents at all, or if you use a will to state your final wishes, the probate process would be a factor. The heirs to the estate would not receive their inheritances until after the probate process was completed.
This can take a great deal of time. Even a simple case will take close to a year, and cases that are contested or complicated in any way can take longer.
The time consumption is one difficulty, but there are also expenses that can eat away at the value of the estate during probate.
These pitfalls can be avoided if you use a revocable living trust as an asset transfer vehicle.
Contesting a Living Trust
You are probably aware of the fact that a will can be challenged. Since a will would pass through probate, if someone wanted to contest the will, a challenge could be presented before the court during this process.
When a living trust is in place, the transfers are not subject to the probate process. As a result, there is no built-in mechanism for challenges, but the terms of a living trust could be challenged through the initiation of a lawsuit.
If you want to minimize the potential for a challenge, you could include a no contest clause in your living trust. This clause would allow for the disinheritance of any beneficiary who files a lawsuit to challenge the terms of the trust.
This would act as a disincentive, but it would not prevent a challenge. A beneficiary could risk his or her inheritance and file a lawsuit.
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