Revocable Trust or Last Will?

If you use a last will to state your final wishes, it would be admitted to probate. This is a legal process that comes with several drawbacks. First, there is the time factor. It will take eight months to a year to probate an estate in uncomplicated cases.

Secondly, probate is expensive. There are court costs, legal fees, the executor’s payment, and other expenses. Lastly, probate is a public process, so anyone that is interested can find out how you distributed your assets.

All of these drawbacks can be avoided through the creation of a revocable living trust. Assets in the trust can be distributed outside of probate.

Creating a Trust

The terms of the revocable trust agreement will provide the necessary instructions for managing and distributing the assets placed in trust.  There are several different types of trusts, each with its own specific purpose.  Nevertheless, there are three essential steps in creating a trust, of which you should be aware. The first step to is creating the trust agreement, then you must fund the trust and finally, the trust must be settled.

The Trust Agreement

The trust agreement is simply the document that provides your instructions on how you want the property held in trust to be handled for your beneficiaries. It is the “who, what, and when” of the trust.  The trust agreement is a contract, which is binding on the trustee that you have chosen to manage the trust property.

Trust Terms

The identity of the trustee who will be in charge before your death must be identified, if this will be a living trust.  Also, the name of the trustee who will be in charge of the trust if you become incapacitated and upon your death must be included.  The names of your chosen beneficiaries need to be provided, as well as a list of the property they will each receive.  Along that same line, you must indicate when the beneficiaries will be allowed to receive their trust assets.  Finally, specific instructions about how the assets will be distributed must be included.

Funding the Trust

Once the trust agreement has been created, the next step is to fund the trust.  Funding is simply a matter of transferring ownership of the assets that you intend to include in the trust.  That means, moving bank accounts to a new account in the name of the trust, naming the trust as beneficiaries of life insurance policies and annuities.  It would also include creating a deed transferring real property to the trust.

Assets such as bank accounts, non-IRA and non-401(k) investment and brokerage accounts; stocks and bonds held in certificate form, and real estate, can be funded into a revocable living trust by simply changing the owner of the asset from the name of the grantor to the name of the trust itself.  Some institutions only require that the name on the grantor’s account be changed.  Some institutions, however, will require the grantor to close the original account and open a new one in the name of the trust.

When the trust assets include personal property of the type that does not require a certificate of legal title (e.g., Jewelry, artwork, antiques), then the assets can be funded by simply assigning ownership to the trust.  This would also include things like personal loans, royalties, copyrights and patents; partnership and membership interests in limited liability companies.

For those assets that require a beneficiary, simply transferring the title of those assets into the name of the trust.  Instead, the trust needs to be named as the beneficiaries of these accounts or policies.

Settling the Trust

After the trust has been created and funded, then the final step is to settle the trust.  This can only occur after the death of the grantor, or the person who created the trust.  Basically, once you pass away, it is time for you trustee to follow the terms of the trust that pertain to handling your property after your death.  This is usually when disputes or trust contests arise, between relatives or anyone else who may have had an interest in your trust.

Learn More!

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