When you use a will to define the distribution of your assets, those assets go through probate, while trust assets do not. Also, relative to a will, a trust can handle more complex situations, and you can continue to use assets in a revocable trust -- which is not the case with an irrevocable trust. Let's talk about each of these factors below.
- Trust assets don't go through probate. Probate is a lengthy court process that involves inventorying and liquidating assets, paying creditors, and distributing wealth to beneficiaries. Probate documents, including the will of the deceased, become public record, accessible by anyone. On the other hand, trust records generally remain private, which benefits grantors and beneficiaries.
- A trust can handle more complex distribution scenarios. A trust can hold and manage funds for minor beneficiaries. It can also distribute wealth in increments rather than all at once. You could also use a trust to pay for care for a disabled beneficiary.
- You can continue to use the assets in a revocable trust. You can place real estate, cars, bank accounts, and non-retirement investment accounts into a revocable trust. Although these assets technically become property of the trust, you can continue to live in the home, drive the car, and trade in the investment account.
Steps to setting up a revocable trust
Revocable trusts are usually created by an estate attorney. The attorney drafts a trust document that lists the people involved. These include:
- A trustee who manages the trust assets
- A grantor who establishes the trust and is often the initial trustee
- A successor trustee who takes over when the grantor passes away
- Beneficiaries who receive assets from the trust after the grantor passes away
Once the trust document is finalized, the grantor signs it and has it notarized. The last step is the most tedious. After the trust is created, the grantor must transfer ownership of the assets to the trust. This can involve changing real estate deeds, car titles, and names on bank accounts.
Grantors will often couple a revocable trust with a pour-over will. The pour-over will transfers any remaining personal property into the trust when the grantor dies.
