As I have mentioned before that in addition to my day job, and this blog I operate a very small law practice. In both my law practice and day job Revocable Living Trusts come up often, however, I am not a particularly big proponent of using them for one specific reason discussed below.

What is a Revocable Living Trust?

A Revocable Living Trust is a trust with rules for distribution of assets it owns both during the life of the grantor (person creating the trust) and at death of the grantor.  It is usually accompanied by a “pour over will” which is merely a Last Will and Testament that directs all assets to the trust.

Why Use a Revocable Living Trust? The Benefits

Despite my distaste an RLT has a lot of benefits:


A Last Will and Testament is a public document once it is filed for probate.  If properly prepared The Court and/or the County Clerk never sees the Revocable Living Trust and thus it is not public record.  This is the reason why there are some celebrity wills/distribution schedule that are released and some are not.

May Handle Long Term Care Issues without Court Interference

Well drafted RLTs have clauses which will actually boot the Grantor (person creating the trust) as Trustee (person who runs the show) and put in place a subsequent Trustee if that Grantor-Creator is deemed incompetent.

Sometimes this is done with everyone on the same side and dad knows he can handle the banking anymore…other times not so much and that is when The Court or a Doctor has to interfere.

May Avoid Probate

Almost 100% of the time the main reason these items are glorified by attorneys/financial professionals has to do with avoiding probate.  As defined by Wikipedia probate is,

the legal process of administering the estate of a deceased person by resolving all claims and distributing the deceased person’s property under the valid will. A surrogate court decides the validity of a testator’s will. A probate interprets the instructions of the deceased, decides the executor as the personal representative of the estate, and adjudicates the interests of heirs and other parties who may have claims against the estate.

Probate can be, but not always is, costly and time consuming, so avoiding it could be a fantastic goal.  Since the assets are supposed to be owned by the Trust then there is nothing in the decedent’s estate.

It should be noted that not all assets are probatable assets.  Assets owned with a payable on death beneficiary or owned joint with rights of survivorship are two types.  So if a couple owns a home Joint Tenets (or in some jurisdictions Tenancy by the Entirety for married couples) then upon the first death the home goes to the survivor automatically with no probate, but upon the second death there would be probate.

As stated earlier The Trust directs the assets after the decedent’s death.

Why I Dislike Using Revocable Living Trusts

There are two reasons why I dislike using RLTs, one major and one minor.  The very minor reason is that people assume that their estate plan is bullet proof after they have one drafted and executed.

A Revocable Living Trust does not automatically account for Federal or State Estate Taxes.  Read that again.  Your distribution schedule whether they are laid out in a Last Will and Testament or a Revocable Living Trust determine your estate taxes.   Anyone that tells you otherwise has no idea what they are talking about.

That may just be a misunderstanding so I can let that one go; the major problem I have is that Revocable Living Trusts are rarely “funded.”

Remember how I said may avoid probate…well not all Revocable Living Trusts will avoid probate.  Only those RLTs which are fully funded will avoid probate.  Fully funded means that the decedent has absolutely no assets that would pass through probate.

Who renames all their assets at the age of 45? Sure, maybe you do your house, but what about all your non-qualified investment accounts, your checking account, YOUR BUSINESS, etc.

Those assets not owned by the Revocable Living Trust will be subject to probate.  So when I see a RLT and nothing has been put INTO the RLT then it is the equivalent of having just a regular Last Will and Testament for death purposes.

Revocable Living Trusts often provide a false sense of security when most of the time they are just an empty dormant trust document waiting to be filled at death which means you receive almost none of the benefits.

Do You have a Revocable Living Trust? Is it Funded?