A revocable living trust is an estate planning tool that is commonly used today with a myriad of benefits to its creator (aka, Grantor) and beneficiaries. The Trust is funded with assets owned by the Grantor and managed by the Trustee of the Trust. The Trustee is often the same person as the Grantor when the trust is initially created, although this job will ultimately change to a successor trustee upon the death or incapacitation of the Grantor. The Grantor can also be the initial beneficiary of the Trust and will have complete control over trust assets. Since the trust is revocable, the Grantor has the power to make changes to the trust which may include adding or removing beneficiaries or changing the trust terms.
The benefits of a revocable living trust may include control over assets, probate avoidance, reduction or elimination of estate taxes, privacy protection and asset protection to the ultimate beneficiaries. Since the Grantor retains control over the trust and its assets during his or her lifetime, the Grantor has the power to distribute the assets to whomever he or she chooses, and may specify ages or specific times for assets to be distributed. Distributions may be based on an individual’s needs or may reward certain behavior or milestones which might include graduation from college, marriage, employment, etc. The trustee may also be instructed to provide for the beneficiaries’ health, education, maintenance and support as interim distributions while the principal is being held in trust.
Assets held in a revocable living trust are not subject to probate. This avoids the administrative delay and expense which may cost anywhere from 5 to 15 percent of the estate’s value and may take six months to over a year to complete. In contrast, assets held by a trust generally allow for a seamless transfer of assets to the beneficiaries without involvement of the courts.
Privacy with a revocable living trust is a benefit not granted to those with a simple will or those who die intestate (without a will). Wills are probated and decedent’s assets become part of public record, allowing the general public access to a very private matter. Not only is this an unnecessary disclosure of sensitive information, but it may lead to unforeseen problems for the beneficiaries in the event such information lands in the hands of unscrupulous persons.
While a revocable living trust does not protect the Grantor against creditors, it can be designed to protect the ultimate beneficiaries’ interests. This is accomplished by including a spendthrift provision in the trust document, and retaining trust assets in trust for the benefit of the beneficiaries. While the assets are retained in trust, they will be protected against creditor claims and judgments filed against a beneficiary of the trust. These could include divorce, bankruptcy, and unforeseen claims against the beneficiary.
A revocable living trust was once viewed as something only the ultra-wealthy had, but today is a mainstream tool used by families from all walks of life.