Revocable trusts, also known as living trusts, are one of the most effective estate planning tools in the attorney’s arsenal, which is why they have become so popular.

What is a Trust?

A trust is simply a particular way to own property, with a set of instructions of how to deal with that property.  A trust is recognized as a separate legal entity, just like an individual or a corporation.  It is separate from the individual just as a corporation is separate from the individual, even though the individual is the stockholder and president of the corporation.

A corporation is a good analogy to a trust.  If you start a corporation, is the corporation the same as you?  No, it is recognized as being its own entity. If you own all the shares of the corporation, it still is its own entity, but who controls it?  You, the shareholder.  If the corporation buys a company car, it is owned by the corporation.  But who decides who gets to use that car, or decides when to sell it, or to buy a new one?  You, the shareholder, of course.

A trust is the same way.  You create a trust; you’re called the settlor.  The trust is separate from you, but it is controlled entirely by you.  After you create the trust, you transfer your house into the trust.  Who owns the house now?  The trust does.  But who controls the trust, and the house?  You, the settlor.  You can buy, sell, rent, do whatever you want with the house because you control the trust. And in the trust, you’ve provided instructions how to manage and distribute that property after you’re gone.

And that brings us to one of the most important characteristics of a trust.

No Change of Ownership Upon Death – No Probate

When a person dies, his probate estate consists of everything he owned in his own name alone immediately preceding his death.  Since the owner is now deceased, a new owner needs to be established.  And that is what probate does.  It determines (pursuant to a will, or pursuant to state statute if there were no will) who the new owner is going to be.  Until the probate court decides that, ownership is in question.

A bank won’t release to the surviving spouse the bank account that had been held in the decedent’s name alone.  Why?  Because ownership is in question and the bank wants the assurance of having a court determine who is the new owner.  If the bank gives the account to the surviving spouse, and it turns out that someone else is the new owner, the bank would have to pay that amount again to the new owner.

But a trust is a separate entity.  When the settlor dies, his trust will instruct the new trustee what to do with the money, just as a will instructs an executor what to do with the money in your probate estate.  But from the law’s standpoint, there is not a change of ownership.  The trust didn’t die, even though the settlor did.  And even though the trust will distribute the money according to the trust’s instructions (just as though you had a will), still the trust itself did not die.  No death of the owner, no change of ownership, no need for a probate court to determine who the new owner is going to be.  It is already provided for in the trust.

Thus, the trust will keep your property out of probate.

Flexibility and Creativity

Avoiding probate is not the only benefit of a living trust.  Trusts also allow you to be flexible and creative in a way that you can’t be with a will.

A living trust is a revocable trust, which allows you to change the terms of the trust whenever you wish.  Although a will can be amended, it generally is not; a new will is made instead.  The formalities of signing the will (particularly the attestation by witnesses) generally results in a new will being made, rather than just an amendment to a will being signed.  A revocable trust, on the other hand, being a contractual document, needs only to have the change written down and signed by the settlor.  If you want to amend your trust, I simply draft an amendment, you sign it and put it in your estate planning book next to the trust, and you’re done.

Also, and of major importance, is creativity. A will basically limits you to outright distributions to your beneficiaries.  Outright distribution means that the beneficiary gets the distribution in a lump sum.  Are you limited to an outright distribution?  No, but to accomplish something other than an outright distribution, you need to fit a trust inside your will (called a testamentary trust).  And if you’re going to do that, why not create a living trust now, so that it takes effect now and avoids probate?

The trust, instead of being limited to an outright distribution, allows you to control distributions as though you were still alive.  Indeed, trusts used to be referred to as ‘mortmain’, Latin for ‘dead hand’, meaning you could control your estate from the grave.  Instead of making a gift to a child which he will get all at once upon turning eighteen, you can provide that the gift to the child is held and used for college, then distributed to him in varying amounts over time.  You can craft any scenario that you think will be beneficial for your intended beneficiaries.  This really allows you to plan your estate in a way that you cannot do if you are limited to an outright distribution.

Ease of Administration

The trust, since it is not required to be administered through probate, will not face the expense and the delay that is necessarily a consequence of probate.  No waiting for the creditor’s claim period to pass before distributing assets to your surviving spouse.  No incurring expense or delay due to litigation by claimants fighting over the will.

Your spouse and your children will be thankful that the heart of your estate plan was a living trust, when they see how seamless is the administration of your trust compared to what routinely occurs in probate.

What Do I Do For You?

Is a trust for everyone?  Not necessarily.  If you have no children, or are not concerned about when a beneficiary receives a distribution, or the size of your estate does not warrant it, then a will is probably satisfactory for you.  But make no mistake: trusts are great.  They can be advantageous for almost anyone (and their beneficiaries) and can accomplish so much more than can a simple will.  But is a trust right for you?  Let’s sit down and talk about the advantages and disadvantages of wills and trusts, so you can make your own informed decision about what is best for you.