Choosing between a revocable living trust (RLT) and a Will may seem difficult, but it does not need to be. An experienced Colorado estate planning attorney can help you understand the differences, advantages, and disadvantages of each.
A Will is an estate planning document which dictates where your assets go when you pass away. It also appoints an executor to oversee the process. For example, a very simple Will could be written as follows:
- I want all my property and belongings to go to my spouse and if he (or she) is not living, then equally to my adult children.
- My spouse will be the executor of my estate or personal representative, and if he (or she) is not living, my brother will be my personal representative.
A Will is deceptively attractive because of its perceived simplicity, but it only works well to manage the distribution of small estates. Most people don't know a will almost always has to go through probate.
Probate is the legal process of overseeing and administering a deceased person's estate. In probate, your executor has to file your will and other papers with a probate court. The court will then issue letters testamentary which give your executor the authority to carry out all your wishes. The letters testamentary will also give your executor the authority to do things like access your bank accounts, sell your property, and make the distributions you specified in your Will.
Probate will not generally result in additional taxes, but it can be an expensive process because of court costs and attorney's fees.
A Revocable Living Trust
Similar to a Will, a living trust is designed to distribute assets when you pass away, and it appoints someone to handle the distribution. A trust additionally provides for the following benefits:
You may wish to place conditions on distributions from your estate. For example, a trust may specify:
- I want all of my assets to go to my spouse and then equally for the benefit of my children. But, I do not want my children to receive the money until they reach a certain age. - The money should be held in trust and my trustee should determine when and how much to distribute to my children and for what purposes.
Asset protection for your beneficiaries
During the time that your assets are held in a trust for your loved ones, if you have named an independent trustee, then your beneficiaries' creditors cannot get paid from the trust assets. Furthermore, the trust principal will be more likely to be considered separate property rather than marital property in the event your beneficiary gets divorced. This would prevent an ex-spouse from taking trust assets as part of a divorce settlement.
A revocable living trust has the additional advantage of avoiding probate if it is properly funded when you die. To properly fund a trust, you create a revocable living trust now, and transfer all of your assets into it before your death. Then when you die, your successor trustee will not need to go through probate and obtain letters testamentary to gain access to your assets and follow your wishes.
Note: Your Will may include what is referred to as a testamentary trust. A testamentary trust is a type of trust that is created within your Will - often to create a trust for minor children - but does not go into effect until you die. Essentially, your assets will still go through probate and instead of being distributed as a lump sum to your beneficiaries, they will go into a testamentary trust instead.
Both a testamentary trust and a revocable living trust will allow you to place conditions on distributions from your estate and provide asset protection for your beneficiaries. But, only a living trust has the additional benefits of avoiding probate.
A Will - can be nice, simple, and short. It works well to manage how the assets of a small estate are to be distributed. But it normally won't allow you to structure distributions from your estate, provide asset protection for your beneficiaries, nor will it to avoid probate.
A testamentary trust - is created through a Will but only goes into effect after your death. It allows you to place conditions on distributions from your estate and provide asset protection for your beneficiaries, but it does not avoid probate.
A revocable living trust - is more complicated to set up, but allows you to place conditions on distributions from your estate, provide asset protection for your beneficiaries, and avoid probate if it is fully funded with all of your assets when you die.
Depending on you situation, any of these three can be an effective way to distribute your property after you die.