We are often asked how a Revocable Living Trust differs from a Last Will and Testament. The main distinctions involve probate, privacy, and management and control.
A Last Will and Testament is an order for your Estate to go through probate court, while a Revocable Living Trust distributes your estate without going through probate. All information contained in a Last Will and Testament becomes part of the public record, accessible by everyone. Another trustee can operate a Living Trust for you during life and care for your property if you become incompetent. In some instances, estate taxes can be avoided completely for a married couple and substantially reduced for others with the use of a Revocable Living Trust.
A Living Trust Avoids Probate
A Last Will and Testament is an order for a court to review the deceased person’s estate and make sure that the property goes to the people outlined in the Will. A Revocable Living Trust transfers title of an individual’s or couple’s property into a trust during life and then allows that property to pass to beneficiaries without court involvement. In plain English, it changes the label attached to property so it is owned by the trust and the trust dictates what, when, and how property passes to your heirs without probate. If property is not in your individual name, then it does not go through probate.
The private distribution process you outline in a Revocable Living Trust dictates how the process will proceed, and the months or years of probate are cast aside in favor of a process that may only take a few weeks. As a practical matter, the court does not generally care about the distribution of your property as long as your debts are handled, taxes are paid, the law is not violated, and no one contests the trust.
There are many national statistics about the costs of probate, but many place the costs somewhere between 4% and 10%. For even a $300,000 estate, this would mean costs of somewhere between $9,000 and $24,000. A typical revocable living trust package for a married couple usually costs approximately $5,000, and that includes all Health Care Power of Attorney documents, Durable Power of Attorney documents, “back-up” Wills and Living Wills.
Living Trusts are Private and Harder to Contest
All information contained in a Last Will and Testament is part of the public record, and anyone can access those records. How much property you had, who your heirs are and where they live, and who received what assets are all listed in probate documents open to the public. These records provide an easy database for salespeople, con men, and private investigators to see how much money your heirs received and where they reside. A Revocable Living Trust provides substantial privacy since it does not become part of the public record.
Living Trusts are statistically harder to contest than Wills. If an heir contests the validity of a Living Trust or its provisions, the heirs are not even allowed to review the Living Trust unless the document allows it.* Whenever your Living Trust is contested, its terms allow a judge to review the document privately and make a ruling without the heirs ever seeing it.
* [A recent North Carolina ruling allows the heirs to see the Living Trust unless the document specifically states that heirs are not allowed to review the document. Our firm either forbids anyone but the Successor Trustee from reviewing the document, or allows the Successor Trustee to decide who may review the Living Trust instrument.]
Another Trustee May Manage Your Estate For You During Life
A Revocable Living Trust also allows the Grantor (you or you and your spouse/partner) to relinquish control of the Trust during life to another Trustee. This Successor Trustee may then manage the financial affairs of the Revocable Living Trust in your name even though you are still alive. This relinquishing of control becomes particularly useful if you become incompetent.
In the typical provisions of the Revocable Living Trust, if two doctors determine that the Trustor is incompetent, the Successor Trustee can then step in and manage the financial affairs of the Trust without court supervision. With a Last Will and Testament, the executor is only allowed to care for the estate upon death, and in the case of incompetence the person must go through an incompetency hearing before a judge and then the conservator must frequently account to the judge for all financial decisions.