At this point, you are likely are aware that you need some type of estate plan. Especially if you have children. But with so much information available, where do you start? Knowing the advantages of a revocable living trust can help you make better, informed choices about your estate plan.
I am a lawyer and a professional estate planner. In this post, I have narrowed down the top 7 advantages of a revocable living trust for you. So let’s get started.
The 7 Advantages of a Revocable Living Trust are:
- A Trust avoids probate.
- It is mostly cheaper to administrate.
- It’s quicker to administrate.
- A Trust also eliminates multiple probate proceedings for property in other states.
- Unlike a probate proceeding, a Trust Administration is confidential.
- It can prevent formal conservatorship or guardianship proceedings.
- It provides long-term continuity of your assets.
So you are probably thinking, “gee, that’s great! But what does all that mean?” In the sections that follow, I will explain, in plain English, what each advantage means.
1. The Single Greatest Advantage of a Revocable Living Trust Is It Avoids Probate.
Without getting into too much detail, all you need to know about probate is, you do not want it. Let me explain. First, it takes a REALLY LONG TIME. Second, it is often more expensive to go through probate than to merely preparing a living trust. Third, it is complicated and tricky. And if you live in California, the probate process is even more complicated because California requires a much more formal process that states using the Uniform Probate Code.
Generally, the probate process requires that you file several successive Petitions in a particular order. As the probate court grants each Petition, you need to complete specific tasks, like inventory the estate, appraise the property, and give notices. The process generally ends with a complete accounting of the entire estate, including any money you used to pay bills, an order to distribute the estate property, and an Order to pay the administrator and attorney.
It is possible to complete the probate process in twelve months if you filed every document correctly, served the required notices as quickly as possible, and no one objected. But this is rare. Often, probate takes between 18 and 24 months to complete.
More Information About Probate
I wrote two posts describing the probate process in more detail. If you are interested, they are:
What Is Probate and Why Avoid It
AND
How to Probate a Will in 11 Detailed Steps
A trust avoids probate because, on death, the owner of the trust property is the Trust itself – not the person who died. Therefore, if you already have a trust or are merely considering your options, you need to be sure to fund your Trust correctly. If you fail to put property into your Trust, you will not avoid probate.
So, how do you properly fund a trust? It depends on the assets you own. For instance, you can fill out a form with your bank to transfer the account into your Trust. Additionally, if you own a home, you can sign a new deed saying that the Trust is the new owner of your home. (Don’t worry as long as the Trust is revocable you can always undo the transfers, and it does not impair your ability to sell your home).
2. It Is Cheaper to Administrate.
The next advantage of a revocable living trust is that it is cheaper to administrate. Each estate, regardless of whether you have a Will, a Trust, or nothing, is required to be administrated. “Administration” means that you need to pay all the final bills, file the final tax returns, and distribute the assets. As you will see below, the administration of a living trust is often far cheaper than probate.
Probate is expensive. In California, where the average price of a home is over $400,000, the average probate fees exceed $22,000. This is because, under the California Probate Code, both the administrator AND the attorney get a percentage of the estate’s gross assets.
Can the administrator and attorney waive these fees? Sure. But I’ve rarely seen it.
By contrast, a revocable living trust does not require a court-supervised administration period. Instead, the successor trustee is immediately authorized to pay bills, distribute money, pay taxes, and do whatever else is necessary without court approval.
But, trust administration is not without its unique expenses. For example, many Trusts allow the successor trustee to collect “trustee fees.” Some do not. You will still have to give notice to creditors and various State agencies. Additionally, Trusts typically require that the trustee provide at least a final accounting of where all the property went.
That said, a Trust is allowed to waive the accounting, and beneficiaries can also waive the accounting to save costs.
Bottom line, you will need to spend some money to administer a Trust, but its peanuts compared to probate. Of course, with any administration, expenses will increase if an heir or beneficiary decides to sue. Trusts and Will are not immune from lawsuits.
3. A Trust is Quicker to Administrate.
As I alluded to above, one of the other advantages of a revocable living trust is that it is quicker to administrate. When a trust becomes irrevocable (usually when the person who created it dies or is incapacitated), the successor trustee must give notice to the beneficiaries. This notice triggers 120 days for an heir or beneficiary to file a challenge to the Trust. After that, no one is allowed to contest the Trust.
Unlike the formal probate process, notice to creditors is not legally required, but it is still a good idea. After providing notice and waiting for the 120-days, the only real administration issue is providing accounting or obtaining a waiver of accounting and filing the necessary tax returns.
Unlike probate, you have immediate access to the Trust funds. Therefore, you can immediately pay bills, sell property, and generally pay beneficiaries quickly. On average, a Trust is 300% faster to administer and 3x cheaper than probate.
4. A Trust Eliminates the Possibility of Multiple Probate Proceedings for Property in Other States.
Sometimes an estate will have multiple properties in different states. Without a Trust, this presents a nightmare scenario. Each state probate court only has jurisdiction in that particular State. So if you open probate in California, but there is a vacation home Colorado, the California probate court lacks jurisdiction over the Colorado property. Therefore, a separate ancillary probate is needed to address the vacation home in Colorado.
This means double the probate fees and additional time.
When a Trust owns properties, it does not matter whether the properties are in the same State or not. All of the properties governed by the terms of the Trust.
Thus, if you have real property in different States, a Trust will benefit you greatly.
You may be thinking, “but I don’t own property on another State!” That may or may not be accurate. Clients often forget about timeshare property. Timeshare property deeded in another State will cause two probate administrations unless you place everything into a Trust.
For instance, my wife and I own a timeshare in Florida (Disney Vacation Club). If we die without a Trust, our children will have to open two probates. One in California and an ancillary probate in Florida. They will also need to hire two different attorneys – one in California and one in Florida.
Not Ideal.
5. A Revocable Living Trust is (Mostly) Confidential.
When a trust becomes irrevocable, beneficiaries have a right to review the terms of the Trust. Moreover, the typical estate plan using a revocable living trust also includes a pour-over will. You must lodge all Wills (even pour-over Wills) with the local probate court.
But, unlike probate, there is no public record of a Trust administration. This is the number five advantage of a revocable living trust.
When you go through the probate process, everything filed is public record. I can go down to the local probate court and obtain copies of any of the probate documents filed. So if I wanted to know how much you are going to inherit from your parent’s estate, I could quickly obtain that information. Whereas, Trust administration is mostly private. Although beneficiaries may review the terms of the Trust, no one apart from the beneficiaries or family members are entitled to the information.
If you value privacy, then a Trust is your best bet.
6. A Trust Can Prevent Formal Conservatorship or Guardianship Proceedings.
On of the other advantages of a revocable living trust is it makes the need for a conservatorship or guardianship unnecessary. Every living trust should have two plans for succession. Meaning, a Trust must say what happens when the creator of the Trust dies, and ALSO what happens if the creator of the Trust becomes incapacitated.
For example, do you have a plan in place if you develop dementia or Alzheimer’s disease?
Typically, if you were unable to care for yourself, a family member would have to petition the court for a conservatorship over you. But, if you place all of your assets in a Trust, you can give your trustees specific instructions about what to do if you develop dementia or Alzheimer’s disease.
Of course, this means your family will not have to go through the time and expense of obtaining a formal conservatorship.
7. A Trust Provides for the Long-term Continuity of Your Assets.
Most clients believe that they have a “simple” plan in mind for their estate. They say things like, “I just want my kids to have the house.” Or they say, “my kids will inherit my business when I’m gone.” These may sound like they are simple plans, and to some extent, they are. But there is a little more complicated than it may seem.
Without a Trust, there is a risk that your home could be lost or foreclosed between the time you die and when the court authorizes the bank to give you access to the accounts. If you own a business, your beneficiaries may not be able to access the proper accounts to pay vendors, payroll, and other expenses.
The final advantage of a revocable living trust is that it provides a succession of trustees who seamlessly take over when one trustee passes or quits. Therefore, the management of your assets stays mostly intact. Is your business embarking on a novel investment strategy? If drafted appropriately, a Trust can help that strategy succeed even after you pass. If you have a home, after you die, a Trust can help make sure that the mortgage gets paid on time.
Conclusion
There are so many benefits to having an appropriately drafted and properly funded Trust. To recap, the 7 advantages of a revocable living trust are:
- A Trust avoids probate.
- It is mostly cheaper to administrate.
- It’s quicker to administrate.
- A Trust also eliminates multiple probate proceedings for property in other states.
- Unlike a probate proceeding, a Trust Administration is confidential.
- It can prevent formal conservatorship or guardianship proceedings.
- It provides long-term continuity of your assets.
So now you may be wondering, “what’s the catch? Aren’t there any disadvantages of a Trust?” The answer is “yes,” and the reasons may surprise you.
If you would like to learn more, check out our post, What is a Trust?
Also, be sure to read our post, Estate Planning Explained: How to Leave Your Legacy for more general information.
Sources for this article were me (not to brag) but also the following posts from the following websites:
26 Must-Know Statistics about Estate Planning from Advance Capital Management.
2020 Estate Planning and Wills Study from Caring.com.
