Do I Need a Revocable Living Trust in Alabama?
A revocable living trust — not to be confused with a living will — is a financial instrument that you can use to ensure that your money or other assets go directly to a named beneficiary should you pass away or become mentally incapacitated.
You've likely heard of "trusts" before. If you're like most people, you're probably also under the impression that you need to have accumulated a lot of wealth to set up a trust. However, this isn't necessarily the case. As long as you have valuable assets, whether money or something else, it's good to set up a living trust for reasons we'll discuss later in this article.
A revocable living trust can become an integral part of your estate planning in Huntsville, AL. Best of all, it doesn't have to be permanent. Read on to learn more about what a revocable living trust is, how it works, and whether or not you actually need one in the state of Alabama.
What Exactly Is a Revocable Living Trust, and Do I Need One?
Let's begin by defining a living trust because it's the "living" part that always throws people off, especially if they're new to the concept of both wills and trusts.
A living trust is a legal document that an individual can create during their lifetime. This document is the precursor to a specific account with a named beneficiary and the person in charge of the trust, also referred to as the trustee. The trustee is given the fiduciary responsibility of managing the grantor's assets — writer of the trust, also called the settlor — until those assets can be delivered to their named beneficiary.
A specific date or milestone within every living trust denotes when the asset or assets will be released into the account designated for the named beneficiary. The primary purpose of creating a living trust is to transfer the assets in question to the beneficiary at a certain point without undergoing a complicated and costly probate court process.
The document also transfers the ownership and control of the assets named within it.
Unlike last wills, living trusts may go into effect while you're still alive. Additionally, even if you pass unexpectedly, the assets in the living trust still won't be distributed until the specified date.
Revocable Vs. Irrevocable Living Trusts
When it comes to living trusts, there are actually two kinds: The aforementioned revocable living trust and the irrevocable living trust. They both have the same goal. However, they differ entirely in their provisions.
With a revocable living trust —and this is very important — the assets listed remain under the ownership and control of the grantor. This means that the assets within a revocable trust won't be released into the beneficiary's trust account until the specified date or (usually) the grantor's passing.
This also means that you can make changes to the trust any time you'd like. This would include completely terminating it should you choose to do so.
With an irrevocable living trust, the grantor releases all ownership and rights to the assets named within the document. This means that once the wheels are set in motion, so to speak, the trust cannot be changed or terminated.
It also means that the assets are funneled directly into the beneficiary's account once the trust document becomes official. However, they won't be realized until the specified date or milestone provided by the grantor, regardless of whether they've passed away or not.
So, How Do I Know if I Need a Revocable Living Trust?
Trusts of any kind are never legally required in the state of Alabama or anywhere else, for that matter. However, it's a good idea to create a revocable living trust to add to your will to protect certain assets from the probate court.
When you don't have a living trust, your entire estate will have to pass through your will, which must still go through probate court — which can take almost nine months to see through and can become a costly process.
Of course, if you don't have a will or any trusts when you pass away, your entire estate will have to pass through the Alabama Intestate Succession laws. When this happens, the state handles the distribution of your assets per the succession laws, which means your assets may or may not go to the right people.
Put simply, when you have a living trust in Alabama, any assets within the account will altogether bypass probate court and go straight to the named beneficiary. Furthermore, since there won't be any court processes to evaluate and verify the trust, it remains 100% private, which can add another level of protection for your loved ones.
Revocable living trusts are suitable for estate planning individuals with specific assets and beneficiaries in mind. They're also a good choice for preserving your assets, in general, to ensure they don't have to become subject to the state should you pass away or become mentally incapacitated.
Ultimately, there's really no "rule of thumb" when determining whether or not an individual actually needs a revocable living trust. But, generally speaking, it's a good idea to weigh the value of your assets and take into consideration whether or not you have dependents against the actual costs of setting up and maintaining the trust.
If you don't own any assets of value, aren't married, and don't have any dependents, then having a will by itself should be enough — especially if it's a living will containing an advanced healthcare directive.
Which Kind of Assets Can be Added to a Revocable Living Trust?
There are a lot of different assets that you can add to a revocable living trust. The assets most commonly added to living trusts include real estate, cars, antiques, boats, bank accounts, jewelry, stamp or coin collections, family heirlooms, stocks, bonds, mutual funds, other securities, and generally anything else of value. Keep in mind that depending on the type of asset you're planning to transfer, you may have to take the extra steps to get a new deed or title issued in the trust's and beneficiary's name.
Additionally, certain assets cannot be "owned" by a trust. However, you can still name the trust itself as the beneficiary. While this sounds confusing, the concept is straightforward. For example, you can name your revocable living trust as a beneficiary for your 401(k) retirement account, IRA, or even your life insurance policy. Then, once you pass away, the benefits of those accounts are automatically paid into the trust.
From there, specific amounts may be dispersed to other beneficiaries named within that same trust.
What Are the Benefits of a Revocable Living Trust?
Upon deciding whether or not a revocable living trust is right for you, take into consideration the following benefits:
They Bypass Probate. The first thing your Huntsville attorney will tell you is that probate can be a long and painful process for the bereaved. However, assets within a living trust pass on directly to the named beneficiaries, which can reduce the amount of time your estate spends in probate and will save your family both time and money.
They Offer Privacy. Anything that passes through probate court becomes a matter of public record, which means your last will and assets can be found by anyone. However, the contents of a living trust are 100% private.
They're Flexible. When you create a revocable living trust, you become the trustee, which means you get to manage the trust and make adjustments as you see fit. You'll even have continued access to your money if you need it, and you can terminate the trust entirely if required.
They Offer More Asset Control. A living trust gives you more control over your assets compared to a last will, where your heirs would generally receive their inheritance at the end of the probate process. In addition, a living trust can be written with specific conditions and requirements for their disbursement, which comes in handy if your beneficiaries are too young to manage their own finances.
They're Incredibly Difficult to Contest. We won't say it's not possible, but it's nearly impossible to contest a living trust. This is mainly because there's no probate court involved which severely limits any disgruntled family members' ability to try and overturn the trusts you've legally set forth to get their "fair share" of your estate.
They Can Offer Assistance While You're Still Living. A revocable living trust can also be beneficial should something happen, such as an accident, injury, physically degenerative or neurodegenerative disease that leaves you unable to manage your own affairs. The living trust would appoint a conservator to step in and manage your affairs for you according to the provisions written into the trust without the court's intervention.*
*Keep in mind that if you're using a revocable living trust to protect your assets should you become mentally incapacitated, it's a good idea to include an advanced healthcare directive. Your healthcare directive will set out instructions that can help your trustee, along with your doctors, to determine the best course of action and care in terms of your treatment and wishes regarding DNR (Do Not Resuscitate) orders and more.
Do I Still Need a Will if I Set Up a Revocable Living Trust?
The short answer here is yes. You'll still need a will even if you're planning to set up a revocable living trust. While it may seem like the point of creating a living trust is to avoid needing a will and having to go through probate court, you may still need a will for specific instances, including:
Designating a guardian for minor children (this is something you can't use a trust for)
The property not accounted for in your trust is essential if you come into property or other assets later in life but don't feel that it necessarily belongs in a trust.
Think of your last will as a backup plan that will care for forgotten assets or anything else not listed in your trust. Of course, it may still have to go through probate court. Still, the state will have to legally abide by your wishes — and it's better than your assets having to go through the intestate succession laws.
Setting up a revocable living trust can be cumbersome and even confusing. Let us guide you through it. Call us today to schedule a consultation with Sarah S. Shepard or another experienced Huntsville attorney to walk you through your estate planning in Huntsville, AL.