Planning for the future can be a daunting task, especially when it comes to making decisions about your estate. Two of the most popular estate planning options are revocable living trusts and wills. While both serve a similar purpose, there are key differences that may make one option more suitable for your individual needs. In this article, we’ll explore the differences between revocable living trusts and wills, and help you determine which one is right for you.
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What is a Revocable Living Trust?
A Revocable Living Trust (RLT) is a legal arrangement in which you transfer ownership of your assets to a trust while you are alive. You act as the trustee of the trust and manage the assets as you normally would. The trust contains instructions for how your assets should be distributed after you pass away. The main benefit of a revocable living trust is that it allows your assets to bypass the probate process, which can be time-consuming and costly.
This type of trust is created during your lifetime and becomes irrevocable upon your death. There are several types of revocable living trusts, and each type serves a different purpose. Let’s take a closer look at some of the common types of revocable living trusts:
- Individual Trust: This is a trust created by a single person for their own benefit. The individual trust is designed to provide the grantor with control over their assets while they are alive and ensure that their assets are distributed according to their wishes after they pass away.
- Marital Trust: This type of trust is created by a married couple to provide for the surviving spouse after one of them passes away. The marital trust is designed to provide the surviving spouse with income and/or access to the trust assets during their lifetime while ensuring that the assets are ultimately distributed according to the couple’s wishes.
- AB Trust: An AB Trust is created by a married couple to minimize estate taxes. The AB Trust is designed to divide the couple’s assets into two separate trusts upon the first spouse’s death. The assets in the “A” trust are available to the surviving spouse, while the assets in the “B” trust are not.
- Irrevocable Life Insurance Trust (ILIT): This type of trust is used to hold life insurance policies for the benefit of a person’s heirs. The ILIT is designed to remove the life insurance proceeds from the grantor’s taxable estate, which can help reduce the amount of estate taxes that must be paid.
- Charitable Remainder Trust: This type of trust allows a person to leave assets to a charitable organization while still receiving an income from those assets during their lifetime. The Charitable Remainder Trust is designed to provide the grantor with a charitable deduction and help minimize estate taxes.
Each type of revocable living trust has its own specific purpose and benefits. It’s important to work with an experienced estate planning attorney to determine which type of trust is right for you and your family, and to ensure that your trust is properly created and maintained according to South African law.
Advantages of a Revocable Living Trust
- Avoiding Probate
As mentioned, one of the main benefits of a revocable living trust is that it allows your assets to bypass the probate process. This means that your assets can be distributed to your beneficiaries quickly and without the need for court intervention.
- Privacy
Probate proceedings are a matter of public record, which means that anyone can access information about your estate. With a revocable living trust, your assets and instructions for distribution are kept private.
- Flexibility
A revocable living trust can be changed or dissolved at any time, giving you the flexibility to make adjustments to your estate plan as needed.
Disadvantages of a Revocable Living Trust
- Cost
Creating a revocable living trust can be more expensive than creating a will. There are also ongoing costs associated with maintaining the trust, such as trustee fees.
- Complexity
A revocable living trust can be more complex than a will and may require more time and effort to set up.
What is a Will?
A will is a legal document that sets out a person’s wishes regarding the distribution of their assets after their death. A will is a crucial part of estate planning, as it ensures that your assets are distributed according to your wishes and that your loved ones are taken care of after you’re gone. In South Africa, there are several types of legal wills that you can create, including:
- Formal Will: A formal will is a written document that is signed by the testator and two witnesses. The testator must sign the will in the presence of the witnesses, who must also sign the will. A formal will must also be dated and contain the testator’s signature on every page.
- Holographic Will: A holographic will is a handwritten will that is signed by the testator. Unlike a formal will, a holographic will does not require witnesses. However, the will must be entirely handwritten by the testator and must be signed and dated.
- Oral Will: An oral will is a verbal statement made by the testator regarding the distribution of their assets. Oral wills are recognized under South African law but must meet certain criteria, such as being made in the presence of two witnesses.
- Living Will: A living will is a document that sets out a person’s wishes regarding medical treatment and end-of-life care. A living will does not deal with the distribution of assets but rather with medical decisions.
To create a legal will in South Africa, you must be over the age of 16 and of sound mind. You can either draft a will yourself or seek the assistance of a professional, such as an attorney or a financial advisor. It’s important to ensure that your will is properly drafted and executed, as a poorly drafted or improperly executed will can be challenged in court and declared invalid.
Once you have created your will, it’s important to keep it updated to reflect any changes in your circumstances or wishes. You should review your will regularly and make any necessary updates or changes. It’s also important to ensure that your will is stored in a safe place and that your loved ones know where to find it after your death.
Advantages of a Will
- Cost
Creating a will is generally less expensive than creating a revocable living trust.
- Simplicity
A will is a simpler estate planning option than a revocable living trust and may be more appropriate for those with smaller estates.
Disadvantages of a Will
- Probate
As mentioned, a will must go through the probate process, which can be time-consuming and costly.
- Lack of Privacy
As probate proceedings are a matter of public record, anyone can access information about your estate.
- Lack of Flexibility
A will is a static document and cannot be changed after you pass away.
Which one is right for you?
Deciding whether a revocable living trust or a will is right for you depends on your individual circumstances and goals. Both documents serve similar purposes in that they allow you to control the distribution of your assets after your death, but they differ in some key ways.
A revocable living trust is a more flexible estate planning tool than a will. It allows you to transfer assets into the trust during your lifetime and manage them while you’re alive. You can name yourself as the trustee of the trust and retain control over the assets, or you can name someone else as the trustee. When you die, the trust assets pass to your beneficiaries according to the terms of the trust. A revocable living trust can also help you avoid probate, which can be a lengthy and costly process.
A will, on the other hand, only goes into effect after your death. It allows you to name an executor who will manage your estate, pay any debts and taxes owed, and distribute your assets to your beneficiaries. Unlike a trust, a will must go through probate, which is a court-supervised process of validating the will and ensuring that your assets are distributed according to your wishes.
Ultimately, the decision of whether to use a revocable living trust or a will depends on your individual circumstances and goals. If you have a large estate, a revocable living trust may be a better option because it can help you avoid probate and provide more flexibility in managing and distributing your assets. If you have a smaller estate, a will may be sufficient to meet your needs. Additionally, if you have minor children or dependents, a will is essential to ensure that their care is provided for after your death.
Consider the following factors:
A. Estate Size
If you have a large estate, a revocable living trust may be more appropriate as it can help avoid probate and provide greater privacy and flexibility.
B. Complexity of Assets
If you have complex assets, such as a business or real estate in multiple states, a revocable living trust may be a better option as it can help streamline the distribution process.
C. Privacy Concerns
If you have concerns about privacy, a revocable living trust may be a better option as it can keep your instructions for distribution private.
D. Desire for Flexibility
If you want the ability to change your estate plan as needed, a revocable living trust may be a better option as it can be changed or dissolved at any time.
E. Cost
Consider the cost of creating and maintaining a revocable living trust versus a will. A revocable living trust can be more expensive, but may be more cost-effective in the long run if it helps you avoid probate.
F. Personal Preference
Ultimately, the decision of whether to choose a revocable living trust or a will may come down to personal preference. Some people prefer the simplicity of a will, while others prefer the added flexibility and privacy of a revocable living trust.
Frequently Asked Questions
What is probate and why should I avoid it?
Probate is the legal process of administering a deceased person’s estate. It can be time-consuming and expensive, and may not always distribute assets in accordance with the deceased person’s wishes. Avoiding probate can help ensure that your assets are distributed according to your wishes, and can save your beneficiaries time and money.
Do I need an attorney to create a revocable living trust or will?
While it is possible to create a revocable living trust or will without an attorney, it is generally recommended to seek the advice of an experienced estate planning attorney to ensure that your wishes are properly documented and legally binding.
Can I change my revocable living trust or will after it is created?
Yes, a revocable living trust can be changed or dissolved at any time, and a will can be amended or revoked as long as you are mentally competent.
Who should be the trustee or executor of my estate?
The trustee of a revocable living trust should be someone who you trust to manage your assets according to your wishes. The executor of a will should be someone who is responsible and trustworthy, and who can manage the probate process efficiently.
Can I name beneficiaries in a revocable living trust or will?
Yes, both a revocable living trust and a will allow you to name beneficiaries who will receive your assets after you pass away.
Can a revocable living trust protect my assets from creditors?
No, a revocable living trust does not protect your assets from creditors. However, an irrevocable living trust can provide asset protection.
What happens to my revocable living trust or will if I move to another state?
Your revocable living trust or will is still valid if you move to another state, but it is important to have it reviewed by an attorney in your new state to ensure that it complies with state laws.
How often should I update my revocable living trust or will?
It is generally recommended to review your revocable living trust or will every three to five years, or whenever there is a major life event such as a marriage, divorce, birth, or death in the family.
Can I name a guardian for my minor children in a revocable living trust or will?
Yes, both a revocable living trust and a will allow you to name a guardian for your minor children in the event that you pass away before they reach adulthood.
What is the difference between a revocable living trust and an irrevocable living trust?
A revocable living trust can be changed or revoked by the grantor during their lifetime, while an irrevocable living trust cannot be changed or revoked after it has been created.
Can I act as both the grantor and trustee of a revocable living trust?
Yes, you can name yourself as the grantor and trustee of a revocable living trust, allowing you to retain control over the trust assets during your lifetime.
How do I fund a revocable living trust?
To fund a revocable living trust, you must transfer ownership of your assets to the trust. This can involve changing the titles of your assets, such as real estate and bank accounts, to the name of the trust.
Do I still need a will if I have a revocable living trust?
Yes, you should still have a will even if you have a revocable living trust. Your will can serve as a backup to your trust, ensuring that any assets you forgot to transfer to the trust are still distributed according to your wishes.
What happens if I die without a will or trust?
If you die without a will or trust, your assets will be distributed according to South African intestacy laws. This means that your assets may not be distributed as you would have wanted, and the process of distributing your assets can be lengthy and costly.
Can I make changes to my will after it has been executed?
Yes, you can make changes to your will after it has been executed by creating a codicil or by creating a new will that revokes the old one.
Can I name a beneficiary for my bank accounts and other assets?
Yes, many bank accounts and other assets allow you to name a beneficiary. This can help ensure that these assets pass directly to your intended beneficiaries without going through probate.
Do I need to update my will or trust after major life events?
Yes, it’s a good idea to review and update your will or trust after major life events, such as a marriage, divorce, birth of a child, or acquisition of a significant asset.
Can I name my minor child as a beneficiary in my will or trust?
Yes, you can name a minor child as a beneficiary in your will or trust, but you should also consider naming a guardian to manage the assets on behalf of the child until they reach the age of majority.
How can I ensure that my wishes are carried out after my death?
To ensure that your wishes are carried out after your death, it’s important to work with a qualified attorney or financial advisor to create a comprehensive estate plan that includes a will or trust, beneficiary designations, and other important documents. It’s also important to communicate your wishes to your loved ones and to update your estate plan regularly.
Conclusion
In conclusion, deciding between a revocable living trust and a will is a critical decision that requires careful consideration of your estate planning goals and objectives. While a will is a simple and affordable option that is suitable for many people, a revocable living trust can provide additional benefits, such as avoiding probate and protecting your assets during your lifetime.
When making this decision, it is essential to consult with a qualified estate planning attorney who can provide guidance and help you create a comprehensive estate plan that meets your needs. If you need assistance with your estate planning, we encourage you to contact us to schedule a consultation and get personalized and effective legal solutions to help you achieve your estate planning goals
