Do I need a revocable living trust?

Most people understand that a will is a basic part of an estate plan. Revocable trusts, however, also are important and often are not well understood. 

To help outline how they work and how one could be of benefit to you, Chief Fiduciary Officer Leslie Gillin Bohner answers some common questions surrounding revocable trusts.

What is a revocable trust? Is it the same as a living trust?

A revocable trust is the same as a living trust. You may hear some people use the term family trust, but they all mean the same thing. When you create a revocable trust, you (known as the “grantor”) transfer title to your assets into the name of the trust, typically with yourself as trustee. You are essentially giving property to yourself to hold as a trustee for the benefit of yourself. You outline in the trust document what you want to happen to your assets if you die or are incapacitated.

Nothing changes during your lifetime. That's part of the appeal. It is not designed to complicate anything during your lifetime. It can work in tandem with your will, and it sets up a much simpler process for transferring your assets when you die.

What are the benefits to a revocable trust vs. a will?

You still likely need a will, for example to name guardians for your children if they are young. But with your will, your assets are all held in your own name. When you pass away, through a process called probate, the court gets involved and ensures your will is valid. The court supervises the gathering of all your property, making sure the people named in your will have the authority to take ownership, or overseeing the sale of property if needed. It can be a complicated process.

That works for some people. Some may prefer court supervision, or maybe they don't have family members or other people that they necessarily trust to take on the responsibility.

With a trust, however, you and your family avoid the probate process. Because probate can be costly and time consuming, avoiding probate is one of the primary benefits of a revocable trust. Avoiding probate brings efficiency and it preserves the privacy of your information, since the probate court process is generally open to the public. Your trust simply indicates who gets what assets and names a trustee who will oversee the distribution of assets and settlement of your estate.

When you create a trust, your property is retitled from your name into the name of your trust. That way, the property remains in the trust’s name before and after your death, so it is immediately available at your death and won’t be tied up through the probate process.

So I need to retitle all of my assets into the name of the trust?

Yes, anything of substantial value should be put in your trust, which means it must be retitled from your name into the name of your trust. That is not an onerous process. For example, you would retitle property to “[Your Name], Trustee of [Your Name] Family Living Trust.” It may mean you have to open a new account depending on the institution. For your house or other real property, it means filing a new deed.

Houses, securities and investments, art, collectibles, antiques, all should be titled under your trust to avoid probate. Smaller checking accounts or less valuable property often can stay in your own name and pass without a probate proceeding depending on the law of your state.

Also, your life insurance and your retirement accounts are governed by beneficiary designations. Those would not become part of your trust or your will.

How does a trust work if I’m incapacitated?

The person you name as your trustee will oversee your assets while you’re incapacitated. The property's still for your benefit, still your tax reporting, it still will go to your heirs according to the trust terms once you die, but the trustee has oversight while you are incapacitated.

The benefit of this is that it avoids another court process, which in some states is called conservatorship. In other states it's called a guardianship. Like probate, the court gets involved to handle responsibilities of folks who cannot make decisions for themselves.

A trust also helps avoid some complications of a power of attorney, which can allow other people to act on your behalf if you lose capacity. A power of attorney can include broad responsibilities that some people hesitate to take o without the structure that comes with a trust.

Is it expensive to create a revocable trust?

There is an added cost to creating a trust. In comparison to the cost of drafting a will, the attorney fees associated with drafting trust documents may be slightly higher. But in many cases, there may be no difference.

Will a revocable trust help me save on taxes?

Revocable trusts do not save income taxes, nor do they save estate taxes. The property in a revocable trust is treated as if it were your own property for both income tax and estate tax purposes while you are alive.

If you gain any income from the property, you still report it on your own return. There isn't an additional tax return for the trust. Things only really start changing after you die or if you were to lose capacity. At that point, your revocable trust directs what happens with the property in the trust.

Once my assets are in trust, are they protected from creditors?

No, creditors can still reach your assets both during your lifetime and at death. The trust does not protect against creditors. With a revocable trust, the idea is that it's still your property, you’re paying taxes, and it still accessible to creditors.

For more information on revocable trusts, see our article Beyond your will: How to ensure your estate plan is complete