What is a Revocable Living Trust?

(And why would I want one?)

A revocable living trust is an estate planning tool that allows you to avoid expensive and time-consuming court proceedings. Imagine placing all your assets into a box to which you and only you have the key. The box is the living trust. It is a separate legal entity that holds all your assets. You and your spouse are the trustees of the trust, meaning you control the trust and everything in it.

A living trust does more than just hold your assets. It contains your instructions, guidelines and blueprints for how you want your assets passed to your loved ones when you die and how you want you and your family to be cared for in the event you become incapacitated.

A living trust also designates whom you want to take over as trustee when you die or if you become incapacitated. At that point, your handpicked trustee takes legal control of your assets, protecting you and your family from court control of your affairs.

Also, your trust is revocable, meaning that you can modify or cancel it at any time.

(And you never need to file a separate tax return.)

Doesn't a will accomplish the same things as a living trust?

If you only have a will, court probate proceedings will be necessary to transfer your assets to your family after you die. With a revocable living trust, no probate proceeding is necessary.

Also, a will does not become effective until you die, so it cannot take care of you if you become incapacitated. A court will have to get involved to appoint a conservator to take care of you and your financial affairs. A living trust includes your plans for you, your family and your finances during your potential incapacity, making court involvement unnecessary.

Why do I want to avoid probate?

Probate freezes your assets. If your estate ends up in probate, the bulk of your assets are frozen until the court orders their distribution, which typically takes at least nine months and frequently more than a year. With a revocable living trust, distributions to your loved ones can usually be made almost immediately.

Probate exposes your affairs to interested parties. Court proceedings are public. Probate proceedings could expose your financial information to economic predators and disgruntled heirs. With a revocable living trust, your privacy is protected.

If I became incapacitated, couldn't my spouse take care of everything?

If you become incapacitated and haven't designated someone to take care of your financial affairs, your family will need to petition a court to appoint a conservator. Even if your spouse becomes your conservator, he or she will be subject to ongoing court supervision. No one - not even your spouse - will have the right to make legal or financial decisions for you without a court's permission.

While a durable power of attorney can be used to appoint someone to handle your affairs in the event you become incapacitated, many banks and financial institutions will only recognize a durable power of attorney on their own form.

If you have placed all of your assets in a revocable living trust, your spouse or other hand-picked trustee will have legal title to the assets if and when you become incapacitated. That way, your trustee's authority to manage your assets cannot be questioned, and there will be no need for court involvement. A well-drafted living trust will also spell out guidelines for your trustee to follow as to how you want your assets handled during your incapacity - so, in effect, you maintain some control even during your incapacity. And, unlike a will, a revocable living trust becomes effective as soon as you sign it - so it's there to protect you whenever you need it.

© 2004 by Deborah S. Bucksbaum
Reprinted with permission from Deborah S. Bucksbaum, J.D., Westlake Village, California.

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