If you have a trust, especially a Revocable Living Trust, you may think that you don’t need a will—but this isn’t the case. You do need a will if you have a trust, even if it is a Revocable Living Trust. Although both options are about the transferring of assets from one generation to the next, there are certain things only a will can do. If you have a Revocable Living Trust or are thinking about setting one up, there are a few things you should consider to ensure your assets pass from one generation to the next as seamlessly as possible.
If you need assistance with your finances, work with a professional financial advisor from Good Life Financial Advisors of Mt. Pleasant. We’re ready to help create a personalized plan for your specific needs.
What is a Trust?
As trust is when you give someone else the authority to handle your assets in order to benefit a third party (the beneficiary). A Revocable Living Trust is a special kind of trust created to help your assets avoid probate. When you create a Revocable Living Trust, you own and maintain all rights over all property in the trust. Only after death does the trust become operational. A Revocable Living Trust serves a similar purpose as a will, as it allows you to legally leave certain assets to certain people.
Benefits of a Revocable Living Trust
The biggest benefit of a Revocable Living Trust is that none of the property in the trust must go through probate, which can save your loved ones a considerable amount of time and money. The expenses associated with probate can mean the loss of two to four percent of your estate. Though there are some costs associated with creating a trust, they’re usually quite small. In addition, once the trust is established, there shouldn’t be any court or attorney fees unless changes are made to the trust or some aspect of the trust is contested.
Another benefit of a trust is the increased privacy it provides. A will that goes through probate is public information that anyone can access. On the other hand, a Revocable Living Trust is a private, legal document. The only way a Revocable Living Trust becomes publicly accessible is if beneficiaries contest it in court.
Who May Need a Revocable Living Trust?
A Revocable Living Trust isn’t just for those who have amassed large amounts of wealth. Even those with a moderate amount of assets could benefit from a Revocable Living Trust. It can be part of anyone’s mental disability planning, but there are also reasons why certain groups of people may find value in creating one:
Parents with Minor Children
Parents can set up a Revocable Living Trust and name the trust as the beneficiary of a retirement savings account or life insurance policy. In the case of divorce or the death of both parents, this can help ensure that the accounts get to the child most effectively, since a Trustee would accept the funds instead of a court-supervised guardian. With a trust, parents can also specify the age at which they want the child to have the ability to access the funds.
If you’re single and your estate is over your state’s limit for a summary probate process, you may want a trust to keep your assets from going through the formal probate process.
If you and your spouse together have enough that you’ll have to pay estate taxes, a trust may be able to help minimize your tax burden. A trust can also help if you and your spouse have different beneficiaries. This is common in second or later marriages when you and your spouse may have different children and grandchildren.
Those with Out of State Property
There’s even more reason to avoid probate for out of state property, since it will have to go through probate twice—in the state of your primary residence, and the state of the property (this is known as ancillary probate).
Reasons You May Also Need a Will
While a Revocable Living Trust and a will are similar, they are not the same. A will does things a trust cannot. Only through a will can you designate guardians of minor children, forgive any debts you’re owed, or disinherit a relative who would otherwise be legally entitled to an inheritance, such as a spouse or child.
A Revocable Living Trust also only covers the property transferred to the trust. Even if you attempt to put all your property into a trust, if you receive any near the time you die or you simply forget to put something in, that property may not end up in the trust.
For these reasons, you likely need a will even if you have a trust.
Creating a Will When You Have a Trust
If you have Revocable Living Trust, the good news is that creating a will should be much simpler. The main thing you’ll need to state in your will is who should receive any property not in the trust. You could also consider creating a “pour-over” will. A pour-over will directs all remaining assets you have to be “poured” over into your trust. The problem with this option, though, is that anything going into the trust will first have to go through probate.
Seek Assistance from an Experienced Financial Advisor
No matter what you decide to do, you should discuss your plans with your financial advisor and lawyer. Estate planning can be incredibly complex, but working with the professional team at Good Life Financial Advisors of Mount Pleasant can help ensure you leave your loved ones in the best possible situation.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. This information is not intended to be a substitute for individualized legal advice. Please consult your legal advisor regarding your specific situation.