How Does a Revocable Living Trust Avoid Probate in Alabama?
If you’ve been researching estate planning in Huntsville, AL, you’ve probably heard about avoiding probate. We’re going to be straight with you here — you want to avoid probate as much as possible in the end, as it’s a lengthy and costly process.
Not to mention, it’s a lot to put on the shoulders of your grieving loved ones.
The first step to helping your family avoid the probate process is by creating an estate plan. The second step is to consider your options regarding trusts and wills.
This article will discuss revocable living trusts and how they can help you and your family avoid probate. We’ll also explain what probate is so you’ll understand why it’s something to avoid as much as possible.
Keep reading to learn more.
What Exactly Is a Revocable Living Trust?
A revocable living trust is one of the many types of trusts you can create in your estate plan. The simple definition of a revocable living trust or a revocable trust is that it’s a written document stating how your assets will be handled after you’ve passed away.
Unlike a last will, however, you don’t have to list all your assets and wishes in these types of trusts — or any other type of trust. Instead, you can choose the specific assets you want to put into the trust, including real estate, valuable possessions, investments, bank accounts, or cash.
As with any living trust you would create during your lifetime, the assets you put in your revocable living trust are transferred to your named beneficiary at the time of your death. You can also choose a specific date for the transfer of these assets. For example, choosing a milestone is very common, such as a birthday, graduation, marriage, etc.
The beauty of the revocable living trust is that it’s revocable, which means you can change or cancel its provisions at any time. It’s really that simple.
How Do Revocable Living Trusts Work?
Revocable living trusts work just like any other trust, for the most part. Whoever creates the trust is typically referred to as the trustor or grantor. This person decides which assets will become a part of the trust, who will be the beneficiary, and who will manage the trust — also known as the trustee.
Since we’re talking about revocable living trusts here, as opposed to irrevocable living trusts, it’s typical of the trustor to name themselves the trustee. This is because it’s the trustee’s responsibility to manage the assets within the trust and their distribution when the time comes. So, for example, this would include keeping track of income and tax returns.
It should also be noted that it’s common practice for a trustor to pay their trustee for their somewhat voluntary service. (In choosing someone to manage your trust, you must ensure they keep your best interests in mind and are willing to take on the responsibility). After all, managing a trust is quite a job, and that job doesn’t end until the chosen date of asset distribution or the trustor’s death.
In the case of a revocable living trust, you can make changes as you see fit and even completely dissolve the trust if you choose to do so. Therefore, it makes sense to be the one managing the trust. But, of course, it also makes sense to at least name a successor trustee, which will be the person to work your revocable living trust if you no longer can — which includes mental incapacitation.
Lastly, once the trustor passes away, the revocable trust becomes irrevocable, regardless of whether or not there’s a chosen age or milestone to distribute the assets.
Revocable vs. Irrevocable Living Trusts
When considering trusts as part of your estate plan, your Huntsville attorney will encourage you to also think about creating an irrevocable living trust, depending on your current situation and the assets you have at stake.
We’ve talked about the major advantage of a revocable living trust, which is that it’s revocable; therefore, you can alter it or void it. You also get to act as the trustee, giving you the ability to make decisions regarding the assets. You can even change beneficiaries.
As you may have already guessed, this is the opposite of what an irrevocable living trust can offer you
With an irrevocable living trust, you cannot change or terminate it without the approval of everyone named in the trust. So, for example, if you wanted to remove or change a beneficiary or an irrevocable trust, you would need that beneficiary to agree and sign off on the changes.
Why?
Because once you funnel assets into an irrevocable living trust, they are no longer your personal property or part of your estate. This also lessens the value of your estate, which is a good thing when it comes time to pay estate taxes.
What Exactly Is Probate and Why Do I Want to Avoid it?
Probate refers to the formal legal process by which your county’s probate court gives recognition to your last will and evaluates your estate. In the state of Alabama, the probate process can take anywhere from six to nine months or more, sometimes longer depending on the state of your affairs once you’ve passed on.
Ultimately, the goal of the probate court is to oversee the distribution of your assets by your last will or the state’s succession laws should you pass on intestate (without a will). If you have a last will, it’ll be up to your chosen executor and the courts to evaluate your estate to determine your total net worth and follow through with the distribution of your assets, settle any debts, and pay off any taxes.
If you die intestate, it’ll be up to the probate court to appoint an executor to comb through your assets and distribute them designated by the state’s laws. It should be noted that Alabama’s intestate succession laws aim to ensure your immediate family benefits from your assets. Still, they can only benefit your family as much as your current paperwork — including the names on important documents, such as titles, deeds, bank accounts, etc. If your documents are not up to date to reflect your current state of affairs, your immediate family could lose out on financial support or other assets.
Another probate issue is that once your estate enters the probate process, it becomes a matter of public record. This means anyone can come after your unprotected assets — including estranged family members who feel they’re entitled to valuables or money.
Plus, probate can be costly, especially if your family needs to hire a lawyer.
Ultimately, it would be ill-advised to leave your entire estate in the hands of probate court. Not only will the process cost your family money, but it could also potentially keep much-needed financial support on hold. At the same time, they wait for the court to sort through your estate and distribute your assets.
Why a Last Will Isn’t Enough
Many people assume that writing out a last will and testament is enough. However, your Huntsville attorney will tell you otherwise. While wills are a non-negotiable part of estate planning, they won’t offer your assets the protection they need on their own.
This is partly because wills become a matter of public record, as does anything else that passes through probate court. This means virtually anyone can come and contest your will if they feel that they’ve been left out and have the means to do so. It’s also partly because a last will only go into effect after you’ve passed.
On the other hand, a revocable living trust will have you covered for at least three phases of your lifetime: While you’re alive and well, if you become mentally incapacitated, and at the time of your death. Trusts, in general, also keep your assets private and out of probate court since the assets within them technically no longer belong to you — which holds true for revocable living trusts once you’ve passed away as they become irrevocable at this time.
When you have assets in a living trust, they remain safe from the probate court, public records, creditors, and anyone looking to lay claim on them. However, there are some extreme circumstances during which a trust can be contested. For example, if the trust was created under duress. Other than that, they’re essentially bullet-proof.
This doesn’t mean you can forgo a last will in your estate plan. As mentioned above, they’re non-negotiable. However, wills allow you to do things that trust cannot. For example, they allow you to name guardians for any minor children, state your burial wishes, and take care of any remaining assets not allocated to any trusts.
All the Benefits of a Revocable Living Trust
Suppose there’s one thing that all Huntsville attorneys agree on. In that case, everyone needs a revocable living trust in their estate plan. To recap, here’s an overview of all the benefits associated with revocable living trusts:
They’re Flexible
Revocable living trusts allow you to make as many amendments as possible. This type of flexibility alone can prove invaluable simply because circumstances are always subject to change, especially if you start your estate planning at a young age.
They Safeguard Your Assets While You’re Still Alive
As mentioned, revocable living trusts will ensure the safety of your assets throughout multiple stages of your life, including incapacitation. In addition, this means should an unlikely event occur other than your untimely passing. Your trustee can take over and manage your affairs for you.
Not having to worry about going through court proceedings and appointed conservators provide peace of mind. This is especially beneficial if you’re creating a trust specifically for the financial terms of any minor children.
They Bypass Probate Completely
Once again, if you only have a will when you pass away, your assets will go through probate, and the costs of probate will inevitably cut into what your heirs will naturally inherit from your estate.
Revocable living trusts do not go through probate as they become irrevocable when you die, equating to total privacy. Your trustee or successor trustee also does not have to answer to probate and can move forward with managing the trust and distributing the assets according to your instructions.
This is often a quicker process compared to probate. It’s also more cost-effective.
They’re Low Cost and Hassle-Free
Creating a living trust comes with some upfront costs, as it’s a complex legal document that requires the assistance of your Huntsville attorney. However, it will save you (well, your family) the later expenses with the probate court and estate taxes.
The process of asset distribution with living trusts is also straightforward. There’s no need to assess their value or prove anything.
They Guarantee Privacy
Your estate will become a matter of public record when you pass away. Therefore, anyone can look up your information and view the stipulations of your will, who your beneficiaries are, what they’re inheriting, and more.
The assets within a living trust are no longer a part of your estate, which means they are distributed in private and kept out of the public’s hands. Not only does this protect your assets, but it also protects your beneficiaries.
Don’t Wait to Set Up a Revocable Living Trust.
The best thing about having a revocable living trust is that it gives you peace of mind and the ability to make changes as you see fit. The key is to create one early on, which is valid for your entire estate plan. After all, anything can happen, so it’s essential to be prepared.
When you’re ready to start estate planning in Huntsville, AL, call us to schedule a consultation with Sarah S. Shepard or another Huntsville attorney. We’ll make sure that your estate plan is rock solid, and we’ll help you review it and make the necessary changes when it comes.