Some individuals desiring an alternative to a last will and testament may chose to have a revocable intervivos trust (often referred to as a "living' trust).

In this arrangement, the written trust agreement normally provides that the trusts grantor (who can also be called the trust "creator" or "settlor") has the right to receive all the income for life, to remove other assets he wants to from the trust, and has the power to revoke the all of the trust and reclaim all the assets at any time.

Upon the grantor's death, assets of the trust are then distributed to the beneficiaries, or the assets may be held in further trust according to the terms of the trust agreement.

The advantages of using a living trust instead of having a will are:

1. Avoiding probate. If all the decedent's assets were titled in the name of the trust, then there isn't any need to probate a will with the Surrogate, or the equivalent office in another state.

2. Privacy. A probated will becomes available to the public. However, the size of the estate and its assets are not usually described in the will. This is in contrast with a trust, which is not a public document.

3. Disability management. If the grantor becomes disabled and is unable to manage his finances, then the succeeding trustee can act as trustee and use funds for the grantor. This is preferable to having an agent under a power of attorney.

The disadvantages of a living trust are:

1. Assets have to be retitled. In order to avoid the probate process, it is necessary for the person to transfer all of his assets so that they are not held in his name but, instead, are held in the name of the trust. This is very cumbersome to manage, especially with banking, brokerage or other institutions.

2. The necessity of the Last Will and Testament and Probate. Unless every asset that is owned by the decedent was titled in the name of the trust prior to his death, a will must be probated so that other assets are directed into the trust after his death. For example, if there is anasset that is still in the name of the decedent, only the is the only one able executor able to transfer the assets. In most cases, a person using a revocable trust instead of a will also has a short "cleanup" will directing that assets that remain in the grantor’s name will pour into the trust.

3. No savings on taxes. A living trust will not save on taxes. Both the Federal estate tax laws and estate tax laws of the majority of States provide that assets which a person has the right to revoke and claim as their own can be included in the gross taxable estate even if no will is ever probated.

Now, about the the word "probate". This word has several different meanings, and causes a lot of confusion. The basic definition of the word "probate" is the process of legally determining that a certain document is, in fact, the last will and testament of the decedent. When a last will and testament has been "probated" it means that there is a signed and legally binding determination that it is, in fact, the last will and testament of the decedent, which will be used to administer the estate and distribute the assets. Probate varies from State to State. For example, in New Jersey, this is the least difficult part of estate administration process. However, in other States, such as New York, Florida, California and Texas, this procedure is not only a burden, but expensive as well.

The second meaning of the word "probate" is describes assets that are passed on in accordance with a will or by intestacy. The term "probate estate" means the assets of the decedent are passed according to the terms of the last will and testament, or would pass according to the intestacy statute in the event that there is no last will and testament. The term "non-probate estate" is used to describe assets passed according to a beneficiary designation, rather than by a will, such as life insurance policies, retirement benefits and jointly-held accounts.

Finally, the broadest meaning of the word "probate" is the entire process of administering the estate, including the accumulation of assets, paying debts, selling assets (as needed), filing tax returns and distributing the proceeds.

Substituting a will by using a revocable/living trust does avoids the process of having the will admitted into probate. However, it does not avoid the need for these other processes.

If you would like more information regarding asset protection, trusts, family limited partnerships or the subject of this article please call or email our office.