A revocable living trust can be a useful tool to help you reduce estate settlement costs and to retain control over your assets while you are living. However, the benefits of a living will vary from person to person based on their circumstances. In other words, living trusts are not equally beneficial to everyone.
A revocable trust allows you to transfer your property to a trustee with instructions to hold the assets as specified within the trust for the benefit of the beneficiaries. The trust agreement often covers three important time periods.
The first part covers the time that you are alive and competent. In most cases, you would be the sole beneficiary and sole trustee. You'd have complete control over the property, including the authority to remove all of the trust's assets and the ability to revoke the trust at any time, for any reason.
Part two stipulates that if you become incapacitated, a successor trustee that you have named in the trust will take over to manage the assets for you. You will, however, remain the sole beneficiary. This section will eliminate the need for your family to go to court to seek guardianship over your finances in the event you are unable to manage those funds on your own.
Finally, the third part directs the disposition of the trust's assets after you die.
A revocable living trust in itself, will not eliminate estate taxes for taxpayers with estates in excess of $1 million (the exemption amount in 2013, currently $5.12 million). Yet it can help you to reduce these taxes by allowing you to make the most of estate tax exclusions, generation-skipping tax exemptions, and marital deductions. Of course, these tax-savings techniques are also available through a well-designed will.
Assets in a revocable trust also avoid probate, thereby reducing transfer costs for your heirs. An living trust can also keep your affairs private since they are not a matter of public record. As probate costs can often reduce an estate by as much as 4-10%, significant costs can sometimes be saved using a revocable trust. However, if the trust is un-funded, your assets will still go through probate.
There are also other ways to avoid probate. Joint ownership property can avoid probate as well as any accounts where you have named a beneficiary, such as IRAs, life insurance policies, and annuities.
As previously mentioned, a living trust will not help you save on probate expenses if the trust is not funded. Bank accounts and funds held with your brokerage firm must be transferred by signing forms at your bank, and by providing them with a copy of the trust agreement. With real estate, you will often have to file new deeds with the government's land records.
Living trusts have helped many seniors and their families better manage their finances, but not everyone needs it. So before you spend the money, make sure you know what you hope to accomplish.