Learn about how Revocable Living Trusts work.
How does a Trust work?
“A Will Meets a Business”
I think it is easiest to think of a Trust as “a Will meets a business.”
A Trust is like a Will because it performs the same ultimate function—transferring your assets to your beneficiaries. However, a Trust is better at doing its job than a Will. Property transferred using a Will must go through the Probate court (an expensive, red tape infused process that typically lasts 12-18 months).
A Trust is like a business because as a legal entity it does not die when you die. Your Trust lives on for as long as your instructions direct. On the other hand, a Will lists who gets what, dumps those assets, and then essentially heads for the shredder. A Trust offers far more control and flexibility. For example, if you have young children a Trust can provide for basic maintenance until a suitable age and then parse out distributions over time.
The Mechanics of a Trust (for Revocable Living Trusts):
1. While you are alive you are the sole (or “co” with your spouse) Trustee and Beneficiary of your own Trust.
2. You select a Successor Trustee to manage the Trust and carry out your wishes after your death.
3. You select Successor Beneficiaries to receive your assets upon your death (there is great flexibility and customization in how you wish this to be done).
4. You transfer your assets to your Trust.
5. While alive, you retain full control of all your assets and can change your Trust in any way you please (or revoke it all together, if you wish).
6. Upon your death, your Successor Beneficiaries seamlessly begin receiving the assets of you Trust as you have outlined.
7. Likewise, upon your death, no one who owned anything has died. Thus, your assets (which are owned by your Trust) can be transferred without the need to involve the Probate court.
In conclusion, Trusts are powerful, effective estate planning instrument. They are commonly misunderstood and as a result, frequently underutilized. For most individuals and families, a Revocable Living Trust is the optimal tool for achieving their estate planning goals.