The revocable living trust is a primary estate planning tool for many Americans. It is also known as a living revocable trust, living trust, family trust, inter vivos trust, A-B trust, loving trust and a herd of other names. The trusts are all basically the same document. Attorneys love to give the trust a unique name, so that you have to go to them to get the “special trust.”
Revocable living trusts are used to avoid probate. However, the vast majority of the trusts do not avoid probate for the families using them. As a result, many attorneys argue vehemently against the use of the revocable living trusts. Other attorneys argue just as strongly in favor of the living trusts. Financial planners, insurance agents, and others in the financial investment industry love the living trusts. In order to “make the living trusts work,” all of the trust creator’s assets need to be inventoried. This gives the financial dudes a look at the assets, and of course, they will point out that their superior investments will serve you better than the investments you currently have. They insist that you have to buy their crud and dump the crud you already have.
Many of the financial dudes will join up with an attorney to create your revocable living trust for a great price. It works well, because the attorney spends less than an hour with the client and still makes a good fee for the trust. The financial dude gets to see all of your assets and make his recommendation (and commission). You get a stack of papers and put them in your filing cabinet. (They usually come in a nice three ring binder with the attorney’s name on it.) You feel great because you got all of your estate planning done and got one of those “fancy” inter vivos trust things.
That scenario got the attorney a nice fee for almost no work. It got the financial dude a good commission, and you got some piece of mind. The problem is, unless you learn to use your trust and actually use it, then it won’t avoid probate, as you were told it would. Can you see why a lot of attorneys think the trust is an oversold tool to let the financial dudes into your portfolio?
Revocable living trusts are actually powerful legal tools. In the most common case an individual creates the trust by signing a trust document. Then the trust needs to be “funded” by transferring ownership of the individual’s asset to the living trust’s ownership. (That’s were somebody gets a look at all of the assets.) The individual then manages the assets during his or her lifetime. Life goes on exactly like it did before the trust was created. When the individual becomes unable to manage the assets or dies, the next manager (successor trustee) has full control over the assets. In the revocable living trust document, distribution of the assets after the individual’s death is described in detail. The successor trustee is bound by a “fiduciary duty” to follow the instructions in the living trust. Thus, the expenses, time delays, public exposure, and frustrations created by probate are totally avoided. The living trust works very well when it is understood and properly used.
My book, Protecting Your Financial Future, is a great read. It will walk you through using a trust to give your family a lot more money.