There is a lot of “to and fro” in the press about the need for a revocable trust. The diversity of opinions on the matter makes a lot of unnecessary “noise” and distraction for those seeking an answer. Yet, there are some voices and opinions that should be heard.
One voice is that of celebrity financial expert Suze Orman, who has a popular television program focused entirely on savvy financial choices and moves. She is a huge advocate for the revocable living trust, and explains the logic behind her opinion in very simple and clear terms.
To summarize, she would say:
- The revocable trust is the only legal document dealing with incapacity;
- It is the “main document” that everyone must have as part of their estate plan;
- It is ideal for those who are single, who have only a little money, and for whom probate might be a costly issue; and
- It is something that any “blended” family must use.
That is a lot, but it isn’t all that complicated. Let’s explore precisely what the revocable living trust is, and why it is superior to a will.
Upon Your Death
“A will is simply a document that states where your assets are to go upon your death.” (Orman, 2007) Here, Suze Orman points out a rather obvious fact, but it is something you really need to look at from all sides. The “will” is always seen as the ultimate document, the deciding factor. This is due to all of the books and movies that make the outcome of the will a reason for murder, betrayal, and a list of other naughty behaviors.
However, this perspective is shortsighted. The will, as such, is the document that is like a traffic cop directing distribution of all assets after someone has died. This is far too “black and white,” however because so many people don’t just “die” suddenly. We become ill, incapacitated, injured and hospitalized before dying, etc. and so on.
So, what happens in that often lengthy period of time before we technically die? Ah, here’s where that revocable trust can come in and save the day. This is why experts like Orman call it the main document, the “must have” document.
What’s the “worst case” scenario for those without a revocable trust? It is actually a pretty grim picture. For example, let’s say that a couple owns a home. They must both work in order to maintain the mortgage on that home, and even then, things are very tight. One morning, one of the two is in a serious accident. Though they survive, they are totally incapacitated and will not be earning money or supporting the household for a very long time – if ever again.
This couple has a will . What can it do at a time like this? Nothing. Nada. Bupkus. “Wait,” you say, “They have life insurance!” Okay, but that is to be paid out upon death. Even with disability insurance, the struggle to make ends meet may force the healthy partner to sell the home.
However, that is not going to be a legal option because the home is jointly held, and one person is legally incapacitated. It would take an incompetency declaration, conservatorship, and piles of money to free up the healthy partner to make that sale.
The revocable trust, however, could have an incapacity clause that made the sale of the home as simple as meeting with a realtor and listing it for sale. Additionally, this arrangement would allow the entire probate issue to be dealt with because the asset would have automatically passed to the other partner if the incapacitated person died from their injuries.
“If you want to avoid probate, the easiest way to set up an estate is with a living revocable trust. And the less money you have, in my opinion, the more you need a living revocable trust, because where does a person who doesn’t have a lot of money come up with the money to pay for court costs, probate fees, executor costs, lawyer costs? Where do they get that? They don’t have it.” (Orman, 2007)
Follow the advice of famous experts and get that revocable trust in place before directing a lot of time and effort to your will.