One of the most popular trusts is a revocable living trust. The main reason for its popularity is that it allows you to pass most assets to your heirs without going through probate — a court process that’s expensive, time consuming and open to public scrutiny.
Probate proceedings are a matter of public record, so if you own a closely-held company and your assets go through probate, your competitors, creditors and employees can have access to financial information that you would prefer them not to have.
After creating the trust, you transfer or “retitle” assets from your name to the name of the trust. Like a will, a living trust allows you to explain how you want your assets handled after death.
However, a living trust should generally not be viewed as a replacement for a will. Instead, you might use a “pour over will” in addition to the trust (even if the living trust holds most of your assets).
A pour over will supplements a living trust by providing instructions for the disposition of any assets that aren’t included in the trust for whatever reason. In particular, it can be a valuable document if you forget to transfer an asset to the trust.
Contact your estate planning adviser to handle the technical details of a pour over will.
A revocable living trust can prevent that situation. You can create one of these trusts while you’re alive and can cancel it any time. Generally, you are both the trustee and the beneficiary, so you keep control of the trust’s assets and can change the terms whenever you want. You name a successor trustee to manage and distribute your assets when you die or in the event you become incapacitated.
Despite the advantages, there are some disadvantages. For example, although assets held in an irrevocable trust are generally beyond the reach of creditors, that’s not true with a revocable trust. Assets are treated as if they belong to you, as far as creditors are concerned.
Ask your estate planning adviser if a revocable living trust is right for you.