The Benefits of a Revocable Living Trust vs. a Will
A trust can deal with some things that a will can't
There are basically two types of trusts: revocable and irrevocable. Trusts can be designed to do just about anything you want them to do—special needs trusts and spendthrift trusts are just two examples—but they all fall into one of these two categories.
An irrevocable trust isn't an option for most people because it involves turning over ownership of your property to the trust and its trustee forever—there's no turning back. A revocable living trust can be "undone" if you change your mind. You're always free to reverse your decision later if you form a revocable living trust rather than write a will, but you might not want to.
This type of trust has some distinct advantages over a last will and testament.
Probate is the court-supervised process of transferring assets from a decedent's ownership into the names of his beneficiaries. It's required when someone dies leaving a will—or even if they don't leave a will—because the property has no other way of passing to a living individual.
A revocable living trust doesn't require probate because the trust owns the assets and the trust hasn't died. It's a private contract between you as the "trustmaker" or "grantor" and the trust entity. In most cases, the grantor serves as the trustee of his own revocable living trust, managing the property placed within it during his lifetime.
A successor trustee can be named to step in and take over management of the trust when the grantor dies, settling it and distributing its property to the beneficiaries named in the trust documents.
Maintaining Your Privacy
A will becomes a matter of public record when it's submitted to the court to open probate. Anyone can stop by the courthouse and read it. They'll know what you owned and to whom you left it.
No one other than the beneficiaries—and, in some states, your heirs regardless of whether they're beneficiaries of the trust—are entitled to see your trust documents. They won't become public record unless an heir or beneficiary files a lawsuit to challenge the validity of your trust.
Planning for Mental Disability
A significant advantage of a revocable living trust over a will is that it can prepare your estate in the event you become mentally incapacitated, not just when you die.
Your successor trustee can also step in if you become mentally incompetent to the point where you can no longer handle your own affairs. Your trust documents can specify how it should be determined that you are indeed mentally incompetent, such as by certification by your own physician or by a team of physicians who must all concur.
Your property would not transfer to your beneficiaries if this happens, as it would at your death. Your successor trustee would simply manage your finances and property for you because you're unable to do so.
A will can't provide for this eventuality. Your loved ones would have to ask the court to appoint a guardian or conservator to manage your affairs if you don't have a revocable living trust.
You Might Need a Will, Too
A trust is an empty vessel when it's first formed, a legal entity without ownership of anything until you transfer your property into it. Property that's left out will still require probate because you've made no other arrangements for it to pass to living beneficiaries.
Some people create "pour-over" wills to deal with omitted property. This type of will simply directs that anything you still own in your own name should go to the trust when you die. A pour-over will still requires probate.
You must also use a will to name a guardian for your minor children in the event of your death in most states. A trust can't provide for this.
A Word of Caution
Some revocable trusts don't address mental incapacity, while others offer minimal planning for this type of event. Make sure your trust includes a comprehensive disability plan if you elect to form one.