This is part 6 in my series, Estate Planning – What You Need to Know.
Part 6 – Revocable Living Trust.
The solution for probate is a revocable living trust. A revocable living trust is a legal contract you make with yourself, or, if you are married in a community property state like California, with your spouse. The trust is a set of instructions on how you want your assets to be managed if you become incapacitated and how you want them distributed when you pass away.
You, or if it is a joint trust with your spouse, you and your spouse, are the managers, or trustees, of your trust. As trustee, you have full authority over the trust assets: you can buy, sell and spend assets as you see fit, just like you would do without the trust. The difference is that the assets owned by the trust can be managed by your successor trustee if you become incapacitated or pass away.
Because there is someone already appointed and authorized to manage your affairs, there is no need for the probate court.
Here’s the example I use with my clients to make the point.
You and your wife own your home. The deed to your home names both of you as owners. When you sell your home, you will have to sign a new deed to transfer the home to the buyer.
What if you both pass away and your children need to sell your house? You and your spouse are still listed on the deed as the owners. If your children find a buyer, how will you sign the transfer deed? You’re no longer alive – you can’t sign the closing documents.
That’s when the court gets involved. For the title company to complete the sale of your house, it needs an order from the court stating that someone (the executor) has the authority to sign the deed on your behalf. This is done in probate court.
In other words, your children can’t sell your house without going through the court and getting an order from the judge. That is a real hassle.
However, if you’ve established a living trust, and you’ve transferred title of your home to your trust, then the trust owns your home. It owns your home not only when you are alive, but also when you die. Therefore, your family will not need the court order to sell your house. Instead, the person you named in your trust as your successor trustee can sign the new deed on behalf of the trust to sell your home.
Bottom line: The main benefit of a living trust is it allows your family to manage your affairs “in-house” without court approval and the costs and delays of the probate.
Next is Part 7, Funding Your Trust.