Over the last several decades, revocable living trusts have become much more familiar to an ever-increasing percentage of the public. Many people have become educated about living trusts' benefits when it comes to avoiding the time, stress andexpense involved in probate administration. Others may also be aware of living trusts' possible advantages when it comes to protecting your privacy by keeping the specifics of your wealth out of the public record. But living trusts have the potential to do much more than that. Properly drafted, executed and funded living trusts can offer a wide array of positives to the person who includes it in their estate.
What is a revocable living trust?
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A living trust may help protect you if you become mentally incapacitated.
If you experience a medical event, whether it is a degenerative condition like Alzheimer's disease, a massive trauma like a stroke or some other event that renders you mentally unable to make decisions on your own behalf, it may be necessary to go to court and ask a judge to appoint someone, known as a “conservator” or “guardian of the estate,” to be responsible for managing your wealth and making your financial decisions for you. If, however, you have a properly funded living trust, this court process may be unnecessary. With a properly funded living trust, your trust holds your assets and, upon the onset of your mental incapacity, your trust would dictate that your successor trustee would take over the duties of managing your wealth, which could avoid the need for a conservator at all.
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A living trust may protect your family if you leave behind minor or young adult children.
If you have minor children, the person you want to care for them until they reach adulthood may not necessarily be the person you want to manage your child's inheritance. In a similar fashion, you may be less than comfortable with your 18, 19 or 20-year-old having unrestricted access to, and control of, his/her inheritance. In either circumstance, your trust can help. Instead of having a judge appoint a conservator to manage your minor child's money, or leaving your young adult child to manager his/her own money, you can place that inheritance in your trust and empower your successor trustee to manage that wealth, including delaying certain distributions until the child passes certain life milestones like college graduation or marriage, or reaches certain ages, like 21, 25 or even 30. Even if the bulk of your child's inheritance will come from the proceeds of your life insurance, your trust can still help if you name the trust as the beneficiary and then place instructions for distribution of that money inside your trust document.
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A bank account owned by a living trust may have greater federal insurance protection than one held by an individual.
If you own a bank account in your own name, it is insured by the FDIC up to $250,000. With trusts, however, the FDIC insures bank accounts at a maximum amount equal to $250,000 per beneficiary. That means that, if your living trust calls for your wealth to be distributed to your three children and two of your grandchildren, the FDIC will insure your trust's bank account up to $1.25 million!
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A living trust is not a complete substitute for a will.
While a properly executed and funded living trust can offer you the benefit of avoiding probate, it does not mean that you should avoid preparing a will. A companion will for living trusts, which is often called a “pour-over” will, should still be part of your estate plan. Your pour-over will protects you in case you have assets that you forgot, obtained shortly before your death or otherwise did not get funded into your trust (for whatever reason.) Your pour-over will also protects you if you have minor children, as it can be used to indicate to the courts who you would like to be appointed as the person responsible for caring for your child until that child reaches adulthood.