The most common thing I hear from clients is some version of the following: “I’ve heard that I need a trust instead of a Will. Is that true?” The answer is MAYBE. It depends on your situation. Many attorneys and popular financial pundits sell the idea of a revocable living trust as necessary for everyone regardless of circumstance, but that is not the case.
Revocable living trusts are popular because they can avoid probate, but they involve more time setting up and maintaining, which many people don’t want to do.
A trust is an entity that holds property (real estate, cash, stocks, your collection of Steely Dan bootleg records, etc.), but the ultimate owner, the “beneficiary,” of the property is not the person who controls and manages the property. That person is the Trustee.
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For example, if you set up a trust to hold the property for your children when you pass away, the property you put into the trust is “owned” by your children, but your children do not have control of the property and cannot manage it. That is all handled by the Trustee.
What makes a trust “revocable” is the ability to put property in and take property out whenever you want. What makes it “living” is that it is created and funded during your lifetime and not after you die.
In the case of a revocable living trust, the creator of the trust, the beneficiary, and the trustee are all the same person. In fact, there really isn’t much difference between owning property under your own name and owning it in your revocable living trust.
So why would you want to do this? There are several potential benefits to having a revocable living trust, but the most common reason is to avoid probate.
Our next post in the series outlines the most common benefits of a revocable living trust in more detail, and we conclude with three typical misconceptions about what a revocable trust can and can’t do.
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