Estate Planning - Revocable Living Trusts
How can I avoid probate?
The main purpose of a revocable living trust is to avoid probate. How does a revocable living trust work?
- The trust is created during lifetime. The trust describes how the person’s assets will be administered during lifetime, in case of incapacity. The trust also sets forth who will receive the estate at death, much like a will. Once the trust is created, it is “revocable,” that is, changeable at any time by the creator. The creator or grantor usually serve as his or her own trustee. The trust uses the same Social Security number as the grantor.
- Once the trust is formed, it then becomes like a bucket, into which all of that person’s assets are transferred – including bank accounts, brokerage accounts, real estate, residence, stock, partnerships, etc. (These trusts are usually created by single individuals, and are not usually prepared for couples who hold all their estate assets jointly.)Once the trust is created and the assets transferred into trust, the trust bucket then owns the assets, not the grantor. The title to the bank accounts and other assets reads, “Mary Jones, trustee under revocable trust dated 1/1/16,” rather than Mary Jones. If Mary should have an accident and become hospitalized, her family need not go to Guardianship Court to have a guardian appointed, instead Mary’s duly appointed successor, “Herman Jones,” for example, would immediately take charge and begin paying her bills, selling stock, etc. , without any delay or court supervision.And when Mary dies, Herman as successor trustee, can carry out Mary’s wishes as provided in her revocable trust, and make distribution to the beneficiaries, all without going into probate court.
The main purpose of the revocable trust is not to save estate taxes, but rather to avoid probate. It also avoids guardianship, provides flexibility, and at death provides privacy from the probate court. None of the trust details are made public. By creating a revocable trust, the person is “pre-probating” his or her estate, by making transfers of assets into trust now, thus streamlining the administration process later on.