Does your estate plan include a revocable living trust? If not, you may want to consider it.
They Avoid Probate
Revocable living trusts are similar to wills, but they have one very significant difference -- they eliminate the need for the probate process. Contrary to popular belief a standard will does not avoid probate. (Read more about that here.) A will lets you choose your own heirs, even if those heirs are different than the ones provided for by the default state statutes. However, your loved ones will still have to complete the entire probate process before they legally gain ownership of your assets. This process can be costly and very time-consuming. A revocable living trust (also known as a living trust or revocable trust), on the other hand, eliminates the probate requirement for all property placed in the trust.
Assets held in trust are legally titled in the name of the Trustee of the trust. It can be confusing, but even though the assets are legally titled in the Trustee’s name, the Trustee has a legal obligation to maintain these assets for the benefit of the trust beneficiaries. It is not outright legal ownership of the assets but rather the holding of title in a fiduciary capacity. With a revocable trust, while you are alive and have legal capacity, you are typically the Trustee of your own trust as well as the beneficiary of your own trust. When you pass, the person you have designated as your successor Trustee assumes legal title to the assets in the trust. He or she then administers and distributes those trust assets for the benefit of those you have named to be your beneficiaries (heirs). This avoids the need for court involvement as the successor Trustee can transfer legal title from themself to the beneficiaries.
They Help Plan for Incapacity
Revocable living trusts are more versatile than wills and allow the successor Trustee to handle your finances at a point in time where you are still alive and either (a) incapacitated or (b) handling them yourself may simply be too overwhelming. In other words, a trust gives you insurance that, should the time come that you cannot care for your own financial well-being, your wishes would still be honored by someone you have designated ahead of time.
You may be thinking that a Power of Attorney (POA) can provide the same benefit, and technically, that’s correct. But a trust provides an added level of protection that a Power of Attorney does not. A trust transfers legal title of your assets and places them in the name of your successor Trustee. Barring an allegation of elder abuse or fraud, this makes it nearly impossible for a financial institution to prevent the person you have designated to handle your finances from fulfilling that role.
In contrast, a Power of Attorney simply provides your designated agent with the legal authority to transact on your accounts, sign on your behalf, etc. I personally find it alarming how frequently large financial institutions decline to accept a valid Power of Attorney citing either (a) the age of the document, (b) their opposition to the nomination of a professional fiduciary, or (c) their internal policy of honoring only their own institution’s version of the document. In Oregon, none of the preceding are valid legal reasons to decline to honor a validly executed Power of Attorney, and yet in the last two years I have been on the receiving end of each excuse at least once.
The danger here is that by the time the appointed agent attempts to use the POA, (in most cases) the principal already lacks the capacity to execute a new document that meets the institution’s requirements. At that point, the only remedy is to petition the court for a conservatorship. A revocable living trust completely avoids this problem, giving the successor Trustee immediate access to financial accounts.
They Minimize Estate Taxes
Oregon provides a $1 million estate tax exemption per person. With a very large estate and only a simple will in place, your loved ones will likely still end up paying some amount in estate taxes. Revocable trusts allow your beneficiaries to minimize estate tax. Talk to your attorney to find out more about your specific situation.
Are you interested in learning more about how a Revocable Living Trust can strengthen your estate plan? Call us today at (503) 354-6402.