A question that I'm often asked as an estate planning attorney is "How do I know if I need a trust instead of a simple will?" Many people assume that Revocable Living Trusts are just for the very wealthy, but the benefits that they can offer to the average person are significant. Here are some factors to consider when assessing your need for a simple will versus a revocable living trust.
Planning for Disability
Regardless of your net worth, and particularly if any of your assets are titled in your sole name, then you should consider a Revocable Living Trust for disability planning. But beware, because not all Revocable Living Trusts are created equally. A well drafted Revocable Living Trust should contain provisions for determining your mental capabilities outside of a court proceeding as well as how to take care of you and your finances if you do become mentally incapacitated. This will literally save you and your family thousands of dollars by keeping you and your assets outside of a court-supervised guardianship or conservatorship.
Estate Planning for Minor Beneficiaries
Often when I meet with young parents their largest asset is either a life insurance policy or retirement plan. This becomes a problem if the parents later divorce or one parent dies and the children are still minors when the other parent dies. What will happen to the life insurance or retirement account? These funds will be placed in a court-supervised guardianship or conservatorhip for the benefit of the minor until age 18 or 21. Thus, in these situations, I always recommend that the parents establish a Revocable Living Trust to be the primary or contingent beneficiary of the life insurance or retirement account. That way the successor Trustee will have the legal authority to accept the funds instead of a court-supervised guardian.
Estate Planning for Singles
Anyone who is single and has assets titled in their sole name should consider a Revocable Living Trust. The two main reasons are to keep you and your assets out of a court-supervised guardianship and to allow your beneficiaries to avoid the costs and hassles of probate. The minimum net worth necessary for a single person to consider using a Revocable Living Trust will vary from state to state. For instance, in Tennessee, estates valued at $25,000 or less are considered small enough to be administered through a simple probate procedure, while in Florida the amount is $75,000 or less. If the value of your assets is over the minimum threshold in your state, then a full blown, time consuming and costly probate procedure will be required.
Estate Planning for Married Couples
If you're married and the combined estates of you and your spouse exceed $3,500,000 or your state's exemption from estate taxes, then you and your spouse will need to establish Revocable Living Trusts to take advantage of both of your exemptions from estate taxes. This is accomplished by setting up AB Trusts (or if your state has its own estate tax, then a third trust may be needed) and then dividing your assets in roughly equal shares between the two trusts. Note that while this type of tax planning can be done in a will, once you and your spouse divide your assets into separate names, the assets will need to be probated after each spouse dies. The use of Revocable Living Trusts insures that probate can be avoided.
Estate Planning for Real Estate Located Outside of Your Home State
If you own real estate in more than one state or outside of your home state, then you'll need to establish a Revocable Living Trust and deed the out of state property into the trust. Otherwise, your family will be faced with two probate estates: one in the state where you live, called the primary probate estate, and another in the state where the real estate is located, called the ancillary probate estate.
Of course, if your life or financial situation fits into one or more of these categories and you find yourself in need of a Revocable Living Trust, then be sure to properly fund your assets into your trust and update your beneficiary designations, or your trust won't be worth anywhere near the money you spent on it.
