When to use a revocable living trust in your estate plan

A revocable living trust may make sense in your estate plan, depending on your assets and circumstances. A revocable living trust is a receptacle to hold your assets that is created by a legal document. While you are alive and serving as the initial trustee of the trust, you remain in control of those assets. You can also lay out many of the same kinds of terms in a revocable living trust as you would in a will, such as to whom you wish to leave your assets.

The main difference between a will and a revocable living trust is that assets that are given away through a will go through the probate process and assets given away through a trust do not go through the probate process but are instead distributed by the trustee of your trust. When creating your trust, you name a successor trustee to you who becomes trustee upon your death. This trustee acts much like a personal representative does with a will in gathering and distributing your assets upon your death.

Both the timing and cost of probate administration are two key factors to take into consideration when considering whether to use a revocable living trust in your estate plan. In some states, probate can be a long and expensive process and, thus, people want to avoid having assets distributed through probate.

Depending on the value and complexity of your estate, probate timelines and costs vary. If you have a relatively straightforward estate with not a large amount of assets in the District of Columbia, probate can take from 6 months to a year. Small estates worth under $40,000 can take even less time to undergo the probate process. However, if you have a large or complex estate, distributing your assets through a trust will likely be faster and less costly.

Another administrative reason to consider using a revocable living trust is if you own property outside of your state of residence. When you die, any property you own outside your state of residence must go through probate in that state. This would require your estate to incur legal and administrative costs in more than one state if there are two separate probate processes. Many people who own property outside of their home state instead put their out of state property into a revocable living trust for a less expensive and easier distribution process of that property.

Finally, another reason some may wish to distribute their assets through a revocable living trust is to maintain privacy. When assets go through probate, they are subject to a public court process. When you distribute assets through a revocable living trust, the distribution of assets is done privately by the trustee of your trust.

It should be noted that when you use a revocable living trust, it is very important to fund the trust, which means retitling assets so that the trust has ownership of the assets. If you do not place your assets in the trust, they cannot be distributed by the trustee and will end up in probate. An estate planning lawyer can help guide you through this process.

Further, even when you use a revocable living trust in your estate plan, you should still also have a pour-over will as part of your estate plan. A pour-over will directs any assets not in the trust when you die to pass to the trust so they are distributed in the manner you wish. If you have properly funded your trust, there shouldn’t be many assets left to go through your pour-over will and probate, leading to an expedited process for those assets.

Some factors I take into consideration when advising a client on whether to use a revocable living trust in their estate plan include the age of the client, the amount and complexity of their assets, the likelihood of incapacity in the near term, and their desire for privacy. While creating a revocable living trust can increase costs when developing an estate plan, it can provide a lot of benefits for the right situation.

If you want to discuss whether a revocable living trust is right for your estate plan, reach out to set up a consultation. I would love to meet with you to discuss planning for your and your family's future.