Tuesday, August 21, 2012

Legal Considerations for Retirement Part 3: Revocable Living Trusts

Navigating the legal considerations of retirement can be very complex. In part 2 of this 7 part blog series, we discussed last wills. Now, in part 3 of this series, we’ll discuss how you can be sure your assets go to your loved ones with a revocable living trust1 and what happens if you die without a living trust or last will.

What is a revocable living trust?

A revocable living trust is a way for you to leave money for your loved ones. It allows you to have some control over your money, even after you have passed away2. A revocable living trust is a substitute for a will, as it also provides for the distribution of your wealth after you pass away. However, unlike a will, you can distribute your assets while you are still alive.

To understand how a living trust works, you must understand the roles of the three people involved. The first is the grantor3, who is the person that creates the trust. The second is the trustee4, who distributes and manages the trust. While you can name anyone as your trustee, many people prefer to choose a bank. The third person involved is the beneficiary5, who receives the benefits of the trust.

A revocable living trust has a number of advantages. First, with a living trust, you avoid probate. Probate6 is the process for transferring your assets after you die. The process is often long and involves court. Without a probate, your beneficiaries have quicker access to your assets. A living trust is also allows you to make changes while you are still alive. Changes can be made even if you are already giving your beneficiary money from the trust.

What happens if I die without a last will or revocable trust?

A revocable living trust and a will are very similar, as they both help distribute assets after your passing. If you die without a revocable living trust or a will, the state will allocate your assets. This process varies greatly from state to state, however, your assets are usually distributed to your closest living relatives. State laws dictate the order in which your relatives receive your property. Additionally, state law determines what proportion of your assets each of your relatives can have. The state only receives a resident’s assets if they have no living relatives. 

When you die without a last will or trust your assets must go through probate. The process can be very long and leaves your assets up for dispute between your family members. Additionally, if you have a young child, the court can decide who has the right to your child’s guardianship.

When you have a revocable living trust or will, you will be sure your assets go to the right people. In part 4 of this 7 part series we’ll discuss living wills and what you need to know to about them.

2 “Establishing a Revocable Living Trust.” Investopedia, May 28, 2010; http://www.investopedia.com/articles/pf/06/revocablelivingtrust.asp#axzz21TTWAV92

6 “Probate.” Wikipedia; http://en.wikipedia.org/wiki/Probate

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