What is a Revocable Living Trust?
- A Revocable Living Trust is a way to own and title property.
- A Revocable Living Trust can only be created while you are alive.
- A Revocable Living Trust is a legal entity - like a corporation or a municipality.
- A Revocable Living Trust can be revoked.
A Revocable Living Trust is a way to own and title property. To transfer real property into your trust, the document used is called a Quit Claim Deed. To transfer other assets, like a bank account, the process is as simple as opening a bank account. All that is usually required is a visit to your banker to show him your Living Trust documents, and completing forms that the bank requires for a name change on you account.
A Revocable Living Trust can only be set up while you're alive. I know -- obviously! You can't very well set up anything after you've passed. But, a Revocable Living Trust provides the peace of mind that you know you carefully planned for the organized distribution of your assets. Your loved ones will appreciate your forethought.
A Revocable Living Trust is a legal entity. Similar to a corporation or municipality a Revocable Living Trust is a legal entity that can own property in its name. You can imagine that the City of Orlando owns certain buildings and infrastructure, but the City of Orlando, or any municipality for that matter, is not a person. Likewise, assets -- vehicles, bank accounts, etc. -- can be owned in the name of your business. It is the same with a Revocable Living Trust. Assets are owned in the name of your Living Trust.
A Revocable Living Trust can be revoked. If you decide to revoke your Revocable Living Trust you can do so. The assets that you placed into your trust, can be transferred back out the same way you transferred the assets into it.
What are the Main Benefits of a Revocable Living Trust?
- Avoids probate
- Asset Management upon Incapacity
Privacy. A Revocable Living Trust is a set of private documents that never needs to become part of public record. Unlike a Last Will and Testament, a Revocable Living Trust, does not need to be entered into the court records as a public record. The documents remain in the possession and control of the Trustees.
Avoids Probate. A Revocable Living Trust allows assets to be transferred from one person to another, one generation to the next, without going through the probate court or probate process. There is more detailed information about probate below and later in this course.
Flexibility. A Trustee for a Revocable Living Trust can transfer assets into and out of the ownership of the trust as he sees fit. And the Revocable Living Trust can be completely dissolved if need be.
Asset Management upon Incapacity. If you become incapacitated for any reason, your assets will be managed as you have requested. A provision for asset management upon incapacity is included in the Revocable Living Trust documents. This allows a trusted relative or family member to step into your shoes and take care of your personal affairs while you are unable. If and when you recover, you can take back control of your Revocable Living Trust and your assets.
Why Avoid Probate?
The biggest potential advantage of a Revocable Living Trust is that it keeps your estate out of probate. Keeping your assets out of probate will likely save your heirs time and money, because probate is expensive and time consuming. Probate can take anywhere from six months to two years or more. Except for the smallest of estates, an attorney is required. Attorneys' fees must be paid from the estate's assets, before any money is distributed to the heirs.
Florida probate fees, which are set by law, are about average among states. For an estate of $500,000 (by no means a small or uncommon estate where home prices start around $200,000), the cost of probate in terms of attorney's fees and executor's commissions would range around $22,300. This is a big chunk out of your children's inheritance. In many cases, the personal representative also receives a share of the estate's assets, (in Florida up to 3% of the entire estate) before the heirs receive anything. Worse than the financial blow, probate can exact an emotional toll on the surviving family. Your heirs may have to wait several months and sometimes years to collect their inheritances, depending upon the efficiency of the executor, attorney and probate court.