People sometimes buy into solutions that sound too good to be true, and this can enter the field of estate planning. Do-it-yourself legal forms are available on the Internet. Some companies offer estate planning devices like wills and revocable living trusts.
There are many reasons why you may want to take pause before buying into so-called “easy answers.” One of them is the fact that you may assume that a particular legal device accomplishes one of your objectives when in fact it does not.
With this in mind let’s look at what revocable living trusts do and do not accomplish.
You may assume that you are divesting yourself of personal ownership of assets when you place them into a trust of any kind. With some trusts you are indeed surrendering ownership and control. However, with other types of trusts you retain incidents of ownership.
When you create a revocable living trust, you are generally going to act as both the beneficiary and the trustee while you are living. You name successors to assume these roles after your death.
Because you are the trustee and the beneficiary, you control the funds. Also, consider the name of the device. It’s revocable. You can simply dissolve the trust and it will no longer exist.
If someone was to sue you and win a judgment against you, the assets in the trust would not be protected because you do, in fact, retain incidents of ownership. The same is true for creditors seeking satisfaction. They could go after these assets.
While a revocable living trust will not protect assets, these devices are not without value. If you use a Will to express your wishes regarding the distribution of your financial assets to your beneficiaries, nobody will get anything until the estate has been probated.
Probate is a legal process, and during this process the probate court determines the validity of the Will. The court would hear any challenges that may be presented. This court supervises the administration of the estate as the personal representative handles the estate’s business.
This process can be expensive as the personal representative engages an attorney, an accountant, appraisers, liquidators etc. It can get lengthy in terms of time, and it strips the family of privacy because everything that takes place during probate is a matter of public record.
For these reasons probate is oftentimes avoided. If you convey assets into a revocable living trust rather than arranging for asset distributions via the terms of a Will, you can facilitate the eventual transfer of your assets outside of the process of probate.
How Can I Protect Assets?
While revocable living trusts will not protect assets, all is not lost. Viable asset protection strategies do exist.