Top Reason Americans Create a Living Trust
Is a Will Good Enough for the Flintstones?
Hey there, I’m estate planning attorney Paul Rabalais and in this post I will address the top reason why Americans may want to consider establishing a living trust.
Top Reasons Americans Create Living Trusts
So there are many reasons why people all across America set up living trusts. In fact, to do this topic justice, I’m going to make eleven different videos on the top 11 reasons Americans establish a revocable living trust, and I’ll put them all in a YouTube playlist titled “Reasons Americans Create Living Trusts”. But before we discuss the several reasons why people establish a living trust, we should first discuss what a living trust is, through an example.
The Fred and Wilma Flintstone Revocable Living Trust
Let’s say the married couple, Fred and Wilma Flintstone are realizing that they are not getting any younger. They have one child named Pebbles. After working for many years at the Slate Rock and Gravel Company, Fred and Wilma have acquired numerous assets - they have their home, another rental property, investments, bank accounts and vehicles. Fred and Wilma would like, when one of them passes away, for the survivor of them to remain in control of what they have built together, and when both Fred and Wilma are gone, they want everything they’ve worked for to be for their only child, Pebbles.
So Fred and Wilma work with an attorney to build the Fred and Wilma Flintstone Revocable Living Trust, and they name themselves as the initial co-trustees of the trust. The trustee or the co-trustee is the person or people who are in charge of managing the trust. They provide in their trust instrument that when one of them dies, the surviving spouse will be the sole trustee. Now because Pebbles is a young adult and not quite mature enough to handle a big lump sum inheritance all at once, Fred and Wilma appoint their close friend, Barney Rubble, as the successor trustee to handle trust matters when Fred and Wilma both pass away. Fred and Wilma transfer their home, rental property, investments and bank accounts which were titled in the name of “Fred and Wilma Flintstone”,- they transfer title of those assets to Fred and Wilma Flintstone as co-trustees of the Fred and Wilma Flintstone Revocable Living Trust.
When Fred dies years later, Wilma simply takes over as the sole trustee of their trust and is in control of all trust assets, with the authority to use them for her needs. And then years after Fred dies, when Wilma dies, Barney steps in, manages the trust assets, and makes distributions to or for Pebbles under the customized terms that Fred and Wilma established when they created their living trust.
The Concept of Avoiding Probate
So why would Fred and Wilma go to the trouble of creating a living trust and transferring the title of their assets to the trust during their lifetime? Well, that leads us to the #1 reason people in America create living trusts which is - to avoid probate.
The idea behind this concept is that assets that are titled in your name when you die become frozen and no survivors can access them until attorneys are hired, court proceedings take place, and months or years of waiting are required before survivors can access the assets that are in the name of a deceased person - even if the deceased person created and left behind a last will and testament. The writing of a will does not help survivors avoid probate. The concept of creating a revocable living trust to avoid probate involves establishing a living trust, and then transferring title of your “probate assets” (those assets that would be frozen upon your death and required to go through probate if they were in your name), transferring those assets to your living trust during your lifetime so that when you pass away, your house, your other real estate, stock, business interests, LLCs, and other assets are not frozen. Assets in a living trust when you die are not frozen and do not need to go through probate when you die - only assets titled in your name when you die must go through probate.
Nonprobate Assets Can Stay in Your Name
So for example if Fred and Wilma each created a last will and testament (and no living trust), and kept the ownership or title of their assets in their own name, then when Fred died, assets titled in Fred’s name would be frozen - Wilma could not sell the house; Wilma could not access investment accounts that were titled in Fred’s name, and Wilma could not sell the rental property, until Wilma hires probate lawyers like myself, incurs what some perceive as significant expense and months or years of delay as she waits for judges to sign court orders at the conclusion of the court and attorney-involved probate process.
Now don’t get confused by thinking you always need to transfer all of you assets to your living trust. For example, your IRAs,401(k)s, and life insurance, as long as beneficiaries are designated, they bypass the probate process. People typically keep these assets titled in their name during their lifetime, but I’ll talk later in another video about how a living trust can be designated as a beneficiary of these nonprobate assets.
State Legislatures Working to Enable Probate Avoidance
And state legislatures around the country continue to pass legislation to enable certain assets to be passed along to survivors outside of probate, such as assets that are titled JTWROS, POD, or TOD. But even with all of that, it is likely that if you’ve accumulated a number of different classes of assets over the years, a probate is likely to be necessary when you pass away, unless you properly established your living trust and re-titled the necessary assets into the name of your trust.
Results of the Fred and Wilma Trust
So by Fred and Wilma both setting up their living trust, and funding their living trust (funding is that process of transferring title of assets from “Fred and Wilma” to “Fred and Wilma as co-trustees of the Fred and Wilma living trust), they stayed in complete control of all of their assets during their lifetime, and when Fred died, no assets were frozen - Wilma was able to stay in control of all their assets without having to go through the typical court and attorney involved probate proceeding. And when Wilma died years later, Barney was able to step in the next day as successor trustee and make sure trust assets were distributed to Pebbles in accordance with Fred and Wilma’s wishes, all outside of the expense, delay, and hassle of probate. This likely saved the Flintstone family and the Flintstone estate tens of thousands of dollars in estate settlement legal expense, and it saved months or years of delay in the estate settlement process, and finally, from someone who has been executor several times and someone who has been the attorney for the executor and heirs thousands of times, the living trust simply eliminated a lot of nuisance, hassle, and government intrusion in the Flintstone affairs
My Playlist of Reasons Americans Create Trusts
The rest of the reasons people establish living trusts are not talked about as much as the avoid probate reason, but nonetheless, they can be important reasons someone would create their living trust.
And when you are ready to get serious about working with an attorney to make sure your legal affairs are set up the best and most efficient way possible for yourself and your loved ones, click on the link in to request a meeting at the top right corner of the website.
Have a great day.