A will is a testamentary document, meaning that it goes into effect at death. A revocable living trust goes into effect during life, and it can be revoked by the person who establishes it at any time. Hence the name "revocable living" trust. The person who establishes the trust is referred to as the trust “settlor.” The person responsible for carrying out the terms of the trust is known as the trustee. The settlor usually serves as trustee until the settlor’s disability or death. When the settlor dies, the trust can no longer be revoked by anyone and the trust assets are disposed of as provided in the trust document.
Typically, all of the settlor’s assets are transferred to the trust after the trust document is signed. Assets are transferred to the trust simply by changing their ownership so that they become the property of the trust. The settlor has an unlimited right to receive income and principal distributions from the trust. Managing one's assets and finances is not appreciably more difficult after setting up a trust.
There are several reasons to consider establishing a revocable living trust:
1) Probate Avoidance. Assets transferred to a trust during the settlor’s lifetime will not be part of the settlor’s probate estate. The avoidance of probate and its related costs and delays is one of the primary benefits of establishing a revocable living trust. A “pour- over” will should always be prepared in conjunction with a living trust. Often there are assets that are not transferred to the trust during the settlor’s lifetime. A pour-over will essentially specifies that all assets owned by the settlor at the time of death will pass directly to the revocable trust.
2) Privacy. Wills and other probate documents can usually be accessed by the public, while living trusts provide privacy because they are not a matter of public record.
3) Planning for Incapacity. The trust instrument will designate a trustee who is responsible for carrying out the terms of the trust. The trust will also name a successor trustee who will assume management responsibilities if the settlor is no longer able to do so because of physical or mental infirmities. A durable power of attorney may also be used to plan for incapacity. The attorney-in-fact under the durable power of attorney is given the authority to manage the principal’s financial affairs if the principal is no longer able to do so. Banks and brokerage firms generally prefer to deal with trustees rather than attorneys-in-fact.
4) Estate Tax Reduction. Married individuals use A/B trusts to take full advantage of the estate tax exemptions available to both of them. There are many other types of trusts that can minimize or eliminate estate taxes. The type of trust recommended by your attorney will depend on your goals and circumstances.
5) Control of Assets After Death. One of the primary differences between a trust and a will is that a trust can be used to distribute assets to beneficiaries over time rather than in a lump sum. Trusts are almost infinitely flexible in this regard.
6) Protection of Trust Principal from Creditors of Trust Beneficiaries
Protection is not absolute, and depends on how the trust is drafted.
