Revocable Living Trusts as a Method to Avoid Probate
Advice from a Montana Probate Lawyer
This is the final post in a series of entries regarding methods for avoiding probate in Montana. For a more general overview of probate avoidance methods, see Part I of this series; for a discussion of beneficiary designations, see Part II of this series; for a discussion of joint tenancy see Part III. Today’s blog post focuses on revocable living trusts.
A revocable living trust is the most comprehensive and sure way to avoid the probate process. All of the assets are owned by the trust, and not held by an individual therefore a court process is not required to transfer assets upon death. To completely avoid probate with a revocable living trust, the trust must be properly “funded,” which means that all assets must be title in the name of the trust (or held by the trustee of the trust) and not titled in the name(s) of an individual(s).
A revocable living trust is an estate planning mechanism where an individual (called “trustor,” “grantor,” or “settler”) puts property into the trust, to be managed and controlled by the trustee. Usually the trustee is the same person(s) as the trustor(s) while that individual or individuals are alive. The trust is considered a separate entity and technically “owns” the trust assets, and since the owner of the assets never technically dies, probate is avoided.
A revocable living trust has several advantages over other estate planning mechanisms. A trust allows for greater planning options over time. If a revocable living trust is properly funded, then it is possible for your family to avoid the need for probate. A trust may also avoid the need for a conservatorship in the event of incapacity and greatly reduce or eliminate estate taxes for large estates.
Manage Distribution of Assets Over Time
A trust allows you to control the distribution of your assets over time. If you have a revocable living trust, you basically provide your trustee with a set of “instructions,” for how you want your assets to be managed or distributed upon your death. Typically, the trustee invests the property on behalf of the trust and then the trustee will pay beneficiaries interest and distributions according to your instructions. For example, you could provide for a distribution to each child upon graduation of college or upon reaching a specific age. Then, upon the expiration of the trust, the trustee distributes remaining property to the beneficiaries.
Privacy Protection
Trusts provide for more privacy in estate planning than wills. If you had a will it needs to be filed in your county of residence upon your death. The, your personal representative would have to provide notices to all heirs, beneficiaries and creditors, along with a public posting in a local newspaper.
However, if you were to pass away with a trust in place, probate is usually avoided so no documents need to be filed with a court. Your trustee basically follows your instructions and your estate is all handled in a private manner.
Estate Tax Advantages
Simply having a trust does not mean that your family will not have to pay taxes upon your death. However, there can be some estate tax advantages to having a revocable living trust, especially if you are married or want to give a portion of your estate to a charity.
I will not discuss tax planning in any detail in this post, but it is important to note that the federal estate tax limit for 2011 is currently set at $5,000,000. Only individuals that have estates exceeding this amount need to worry about estate tax planning, but the estate tax rate is generally very high and reducing the total value of your estate is greatly beneficial. If you or your family falls into this category I highly recommend working with an estate planning attorney, CPA and financial advisor on strategies for reducing federal estate taxes.
Incapacity Planning
A carefully drafted trust can also account for the management of your assets in the event of incapacity, and eliminate the need for a court ordered guardianship or conservatorship. You can specify in your trust how to determine whether or not you are physically or mentally incapacitated to the point where you are no longer able to manage your own affairs. Then you can direct through your trust who should take care of you and nominate a disability trustee to manage your financial affairs in the event of your incapacity. You can also set limits on the types of assets your disability trustee can manage and the amount of funds they can distribute. Not only could you eliminate the need for a court process to nominate a guardian or conservator, but you can direct the details of this relationship before incapacity.
Considerations
Revocable living trusts are great estate planning tools, but they do not make sense for everyone. Trusts take more work to administer and are more expensive to set up than a regular will, but they can be very effective in avoiding probate. However, if you are concerned about any of the issues I discussed above, or if you simply have more questions about the advantages and disadvantages of trusts, call me to speak with a Montana estate planning attorney at 406-752-6373.