There are some estate planning attorneys who insist that all of their clients have Revocable Living Trusts and there are others who insist that Revocable Living Trusts are a waste of time and money and a Last Will and Testament will work just fine. But to me the question - Do you really need a Revocable Living Trust? - doesn't have a simple "yes or no" answer or "black or white" answer. Instead, this question falls into one of the many "maybe" or "gray areas" of legal questions.
An estate planning attorney who recommends a Revocable Living Trust to 100% of clients is doing a great disservice, just as an estate planning attorney who dismisses them and recommends a Last Will and Testament to 100% of clients is doing a great disservice.
So how can you determine if you really need a Revocable Living Trust? In general there are two basic reasons why estate planning attorneys recommend Revocable Living Trusts to their clients - to avoid time-consuming and costly court-supervised guardianship if you become mentally incapacitated, and to avoid time-consuming and costly probate after you die. But aside from these two very basic reasons for recommending a Revocable Living Trust, there are some additional questions listed below that your estate planning attorney should ask you to determine if a trust is in fact right for you. Considering your answers to these questions along with the basic reasons for using a Revocable Living Trust as the foundation of your estate plan will then give you enough information to determine if a Revocable Living Trust is really what you need.
5 Questions Your Estate Planning Attorney Should Ask to Determine if A Revocable Trust is Right For You
- What types of assets do you own? If all you have are a few bank accounts, some life insurance and a 401(k), then a Revocable Living Trust will probably be overkill. At the very least you will need a good Durable Power of Attorney and an Advance Medical Directive to give someone the authority to manage you and your finances if you become incapacitated. You will also need a Last Will and Testament to deal with your bank accounts after you die unless you can make them "payable on death." Check with your bank to be sure.
What if you own real estate too? A good Durable Power of Attorney will allow your agent named in the document to deal with your real estate if you become incapacitated, and a growing number of states recognize transfer on death deeds, beneficiary deeds or enhanced life estate deeds which will allow your real estate to avoid probate after you die. But if you own real estate in a state that doesn't recognize this type of deed, then a Revocable Living Trust will probably be required to avoid probate of your real estate. Whether probate will be necessary is determined by the value of the real estate at the time of your death and applicable state law.
- Do you own a business? When it comes to a family business, this is where a Revocable Living Trust far exceeds the value of a Last Will and Testament. Why? Because by having your Revocable Living Trust hold your business interest, your successor Trustee can continue to manage the business if you become incapacitated or die. Not so with a will, since a Personal Representative will have to be appointed by the probate court which can take several weeks or even several months to accomplish. In addition, your Personal Representative will most likely need approval of the probate court to continue to run your business beyond a few months after you die.
- Do you want to include minor beneficiaries? If you want minor beneficiaries (individuals under the age of 18) to inherit some or even all of your estate, then you can set up a testamentary trust for their benefit in a Last Will and Testament or a Revocable Living Trust. But in order to first establish the testamentary trust and then address any changes in Trustees or changes in circumstances, a testamentary trust that is created in a Last Will and Testament will be subject to oversight by a probate court, while a testamentary trust created in a Revocable Living Trust won't.
Regardless, do not name any minor beneficiaries as payable on death beneficiaries or IRA or 401(k) beneficiaries since a court-supervised minor's guardianship will need to be established for the minor until they reach 18.
- Are you concerned about privacy? Once its filed for probate, a Last Will and Testament becomes a public court document that anyone can read. Aside from this, the majority of probate court filings are public records that anyone can read, and these documents will list the names of your heirs and their addresses, what you owned when you died, and who you owed money to when you died.
On the other hand, a Revocable Living Trust is a private document that doesn't become a public court record. This means that the only people who are entitled to see a copy of your trust after you die are the beneficiaries and successor Trustees that you have named in the trust agreement. Thus, the terms of the trust, the beneficiaries of the trust, what the trust owns, and the names of the successor Trustees can be kept a secret from the prying eyes of nosy relatives, friends and neighbors.
- Are you concerned about a will contest? While some attorneys may consider a Revocable Living Trust as an excellent strategy to head off a will contest - after all, the trust is a private document, right? - in reality in many states a will that goes through probate is actually the better choice. Why? Because in some states when a will is probated potential will contestants can be notified of the probate proceedings, which in turn will limit the period in which they can file a will contest to a very short time (usually only a month or two). On the other hand, the time period to contest a trust is usually much longer - usually six months to several years - which gives the potential trust contestant lots of time to stew and investigate if they have a case, and then file their lawsuit at the very last minute.
So, Do You Really Need a Revocable Living Trust?
As you can see, asking if you really need a Revocable Living Trust doesn't lead to a quick and simple answer. So, if an estate planning attorney tells you within a few minutes of meeting you that you definitely need, or definitely don't need, a Revocable Living Trust, get a second opinion.