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Tuesday, January 15, 2008

THE INCREDIBLE REVOCABLE LIVING TRUST



TOPIC: TRUSTS AND ESTATES
By Sean Hayden, Esq.

One of the documents new clients most often ask me about is the Revocable Living Trust. If you’ve ever been stuck at home on Saturday nights watching Suze Ormon on CNBC (uh…guilty), you no doubt have heard her sing its praises.

For the rest of you who actually go out every Saturday night, the revocable living trust is a document everyone should have in addition to a basic Last Will and Testament. A Living Trust is a document which allows the assets placed in your trust to avoid probate upon a person’s passing.
Why do we want to avoid probate? (And hey...what is "probate"?)
Probate is a special court in which a Last Will and Testament must be submitted and a special certificate of authority called “Letters Testamentary” must be issued to the Executor of the Last Will. Only then can the assets can be distributed to the beneficiaries. Probate can be very slow, costly and can provide a venue for will contests from disgruntled family members.

So how does the Living Trust work?
Think of a Living Trust as a storage container with a front door, which remains open, and a back door which remains shut. During the lifetime of the person who sets up the Living Trust (we call her the “Grantor”), the Grantor can go in and out of the front door to place assets in the trust, remove assets at any time or even change her mind about the beneficiaries. That’s the “revocable” part. The Grantor is also called the “Initial Trustee” of the trust. Upon the Grantor’s death, the back door opens and the “Trustee” (a person appointed by the Grantor, much like an “Executor” under a Will) can then distribute the assets to the beneficiaries. There is no court procedure and no special certificates to apply for. Assets are swiftly distributed to beneficiaries. That’s great!

Why do you also need a Last Will and Testament?
Well, a Living Trust is “asset specific.” That means the Grantor must specifically itemize each asset and retitle each asset in the name of the Grantor in his capacity as the Trustee. In a Last Will and Testament, you can globally list your assets by specifying something along the lines of “all of my personal possessions, etc.” A person who only has a Living Trust and does not have a Last Will would therefore have assets not covered by any document as it is unlikely a person could possibly update a Living Trust continually to name every possible asset she owns. That’s bad.

So your Living Trust should work with your Last Will to cover your entire estate. However, you will want to make sure you update your Living Trust regularly to ensure as many assets as possible are covered by the Trust. For instance, my clients will visit me for an annual check up meeting to update their Living Trust as well as their other documents.

Together, your Last Will and Testament and your Revocable Living Trust will have you covered...and that's incredible!