The popular financial advisor, Suze Orman, likes to talk a lot about Revocable Living Trusts and has in fact written extensively on the subject. Many of my clients come into my office with Suze Orman’s book in hand and request that I draft a Revocable Living Trust to manage their assets. Before we go down that road, I like to make sure that the client really understands what they are getting into.
What is a Revocable Living Trust (“RLT”) anyway? A RLT is just another vehicle for distributing your property at your death. Put another way, it’s the counterpart to the traditional Will. Rather than nominating an Executor as you would in a Will, you nominate successor Trustees to manage the RLT at your death. While you are living, you are the Trustee of your trust and have full management and control of all of the assets in your trust, just as if they were not in trust. You will also identify your beneficiaries in your RLT – those people you would like to receive an interest in your trust at your death. Finally, you will outline the various dispositions of your property.
There are two very popular misconceptions about what the RLT can do that a Will cannot do. First, many people believe that the RLT has some type of extra “tax” protection or financial incentive. It does not. There is no tax planning that you can do in a RLT that you cannot also do in a traditional Will. Secondly, most people believe that having a RLT will help them “avoid probate.” This may or may not be true. When an attorney drafts a RLT, she will also draft a document called a “Pour Over Will.” The purpose of the Pour Over Will is to capture any assets that were not properly titled in the RLT at the time of your death. Once you establish your RLT, you then need to take the next step of re-titling all of your assets into that trust – you must keep up with the titling throughout your life in order for your assets to pass outside of probate at your death. If you fail to title all of your property into the RLT before you die, then your beneficiaries will still go through the probate process. Even if your beneficiaries are 100% certain that all of the assets were titled in the RLT at the time of your death, most attorneys will nonetheless want to probate the Pour Over Will “just in case.” Just in case of what? In case an asset that your beneficiaries and maybe even you didn’t know about shows up years down the road. If an Executor has been appointed to your estate, then that person has the capacity to handle any matters that may pop up down the road. The good news is that the probate process in Texas is very simple and efficient….IF you have a properly drafted Will.
What are some reasons you may want to choose a RLT over a traditional Will as your core estate planning document? First, you own property in a state that has an onerous, timely and expensive probate process. While there are few states that have such an onerous process, you do not want to be stuck in one of them. This is something that should be discussed with your estate planning attorney in order for her to advise you on the ease of probate in the state where your property is located. For instance, if you are a Texas resident and own property in Colorado, you do not necessarily need a RLT as a result of that out of state property. The probate system in Colorado is very much like Texas and allows for some fairly simple methods by which to transfer title from your Colorado property at your death as long as you have a valid Will in place. You may also consider a RLT for the ease of continuation in the management of your assets. For example, if you are concerned about capacity issues a RLT will allow you to appoint “successor” trustees to serve if you are unable to serve in the case of incapacity or disability. This is helpful for someone who may see that they will need assistance with their finances in the near future and want to be prepared. It may also avoid a Guardianship of the Estate in some instances as well. However, it should be noted that a properly drafted Durable Power of Attorney should work just as well in the case of incapacity if you choose the Will route. Another reason you may choose a RLT instead of a Will is that you own substantial mineral interests and do not want your beneficiaries to have to wait for royalty checks or other distributions after your death. If you have a Will rather than a RLT, the purchasers of the mineral interests will most certainly require you to produce evidence that the Will was probated, among other documentation, and will suspend payments (or issuing new division orders) until they receive such documentation. A RLT may be a better option if you anticipate a Will Contest. If you are “disinheriting” someone and expect that this person will want to challenge the disinheritance, then a RLT may be a better option because the legal standards differ in a Will Contest v/s a challenge to a RLT. Finally, you may want a RLT just because that is what you want! As you can see, there are very few reasons why someone would really need a RLT. If you do not fit into any of the "need" categories, then it just becomes a choice between the document that fits you best. Our Austin lawyer specializes in Revocable Living Trusts and can help you navigate through all the legal work. Call our local Austin estate planning attorney today to schedule your appointment to discuss your RLT.