The question "How do I figure out if I need a trust instead of just a will?" is one of the most common questions that an attorney who specialises in estate planning gets asked by clients. Many people have the misconception that only wealthy people should establish revocable living trusts, but even someone with a modest amount of wealth can reap significant benefits from using one of these trusts. When deciding whether or not you require a revocable living trust rather than a straightforward will, the following factors and circumstances should be taken into consideration.
Mental Incapacity
If you are concerned about the possibility of becoming mentally disabled in the future, you should give some thought to establishing a revocable living trust, regardless of how much money you have in the bank, and this is especially true if any of your assets are titled in your name alone. One of the conditions that must be met for a will to be considered legitimate is that the person who drafted it must be of sound mind. A trust is equipped with safeguards to protect against the risk of being declared invalid as a result of mental incapacity. On the other hand, not every revocable living trust is the same as the others. Provisions for determining your mental capacity outside of a court proceeding should be included in a well-written revocable living trust, as should instructions for how to care for you and your finances if you become mentally incapacitated. These provisions should be included in the trust. Because of the provisions, you and your belongings will not have to go through the process of being guarded by the court, which will save you and your loved ones thousands of dollars.Minor Beneficiaries
A life insurance policy or retirement accounts, such as an individual retirement account (IRA) or 401(k) through work, is frequently the largest asset that young parents have. If the young couple later gets divorced and one of the parents wants to name the minor children as the primary beneficiaries, or in the event that both of the children's parents pass away while the children are still young, this creates a problem. What is going to happen with the retirement account and the life insurance policy? These funds are going to be placed under the supervision of the court so that they can be used for the benefit of the minor until the child reaches the age of majority. In these kinds of circumstances, the parents ought to think about establishing a living trust that is revocable and naming the trust either as the primary beneficiary or as a contingent beneficiary of their life insurance policy or retirement account. In this manner, the trustee, rather than a guardian who is supervised by the court, will be able to accept the funds. Additionally, the parent can stipulate in the trust agreement the age at which the children will receive their inheritance, such as 25 or 30, rather than 18.Individuals Who Are Not Coupled
A revocable living trust is something that should be seriously considered by anyone who is the sole owner of assets and is a single person. The two most important reasons are to keep you and your assets out of a guardianship that is supervised by the court and to enable your beneficiaries to avoid the costs and hassles of probate. IMPORTANT: If the total value of your assets is greater than the state's minimum requirement for probate administration, then a formal, time-consuming, and expensive probate administration will be necessary. The minimum amount of net worth that a single person needs to have in order to be eligible to use a revocable living trust varies from state to state. For instance, in the state of Florida, estates with a value of $75,000 or less are regarded as being sufficiently modest to qualify for administration through a straightforward summary probate process. This threshold is set at $166,250 in the state of California; estates valued at this amount or higher must go through the formal probate process.Couples Who Are Married
If you and your spouse have estates that are valued at more than the amount allowed by the federal estate tax exemption of $12,060,000 in 2022 (up from $11,700,000 in 2021), or the amount allowed by your state's estate tax exemption (which can be as low as $1,000,000), then you should consider establishing revocable living trusts so that you can take advantage of both spouses' exemptions from estate taxes. The federal estate tax exemption will increase to $12,060,000 in 2022 (up from This can be achieved by establishing either AB Trusts or ABC Trusts, and then dividing your assets roughly equally between the two trusts after the trusts have been established. NOTE: The more recent concept of "portability" makes it possible for a surviving spouse to make use of the unused portion of the exclusion for federal estate tax exemptions held by the deceased spouse. Because portability does not allow for this goal to be accomplished, you will need to engage in this kind of planning in order to maximise the use of the generation-skipping transfer tax exemptions held by both spouses. It is important to keep in mind that even though you can do this kind of tax planning in your wills, you and your spouse will need to split up your assets and put them in separate names. If you do this, then the assets will have to go through probate after the death of each spouse. The use of revocable living trusts makes it possible to avoid going through the probate process after the death of either spouse.Couples who are in their second or subsequent marriages
If you are in a second or later marriage and you and your spouse will have different beneficiaries, such as your children or grandchildren, then you should think about establishing revocable living trusts to ensure that each spouse's estate will go where he or she wants it to go outside of the process of probate. If you do this, then neither of your children or grandchildren will have to go through the court system to have their inheritances distributed.Concerns Regarding Privacy
If you file your last will with the probate court, it will become part of the public court record, which means that anyone can read it. Compare this to a revocable living trust, which is a private contract between you as the trust maker and you as the trustee of the trust. Unlike a traditional trust, a revocable living trust can be changed at any time. If the beneficiaries of your revocable living trust agreement do not have to go to court over something that was written in the agreement (like the heirs of Michael Jackson), then the document should remain a private document that only the trustees and certain beneficiaries will be able to read after your incapacity or death. Michael Jackson's heirs went to court over something that was written in his revocable living trust agreement.Properties That Are Situated in the Other States than Your Own
If you own real estate in more than one state, you are required to create a revocable living trust and then deed the out-of-state property into the trust. This is a legal requirement. If this does not occur, your family may be forced to deal with the administration of two distinct probate estates: one in the state in which you currently reside, and a second in the state in which your real estate is situated, which is referred to as an "ancillary probate."One last thing to consider: trusts are useless if they are not endowed with assets.
If you discover that you require a revocable living trust, you must transfer all of your assets into the trust and make any necessary changes to the beneficiary designations. If you fail to do so, the value of your trust will not come close to matching the amount of money you spent establishing it.Questions That Are Typically Asked (FAQs)
What is the most significant distinction that can be made between a will and a revocable trust?
The primary difference is that if you have a will, your assets have to go through the probate process before they can be distributed to your beneficiaries of choice. When a will is submitted to a court to start the probate process, the contents of the will, as well as the beneficiaries and the amount of property that will be left to them, are made public and become part of the official record of the court.What happens if I don't have trust or a last will when I pass away?
If you do not leave any kind of estate plan, your assets will be distributed to your heirs according to a process called "intestate succession." The order of succession is determined by each state independently, but surviving spouses and children are always given priority over other family members. It's possible that more distant relatives won't get anything. There are some properties, such as retirement or other savings accounts that name a beneficiary, that is exempt from the rule because they automatically transfer to a living beneficiary upon the operation of the law.I can have both a living trust and a will as my final testament?
You certainly can, but if the same asset is bequeathed to two different beneficiaries, the provisions of your trust will take precedence over those of your will for the bequest. When you transfer an asset into a trust, that asset is then regarded as being held by and owned by the trust. Because of this, you are unable to leave it to anyone else in your will. You can create a "pour-over will" to transfer into your trust any assets you own at the time of your death if you haven't already done so, and a will can control the disposition of assets that you haven't included in your trust. However, a will can control the disposition of assets that you have included in your trust.