Revocable Living Trusts
A revocable trust is an estate planning tool that is commonly used today with a myriad of benefits to its grantor and beneficiaries. A revocable trust is a legal instrument used to avoid probate, provide privacy and potentially minimize taxes. Because it is effective during your lifetime it is often also referred to as a living trust. A revocable trust is very flexible in that you can amend, revise or revoke the trust document any time while you are alive. You can distribute the assets in the trust to whomever you choose, and you may also specify at what ages money or assets will be distributed.
The trust is funded with the grantor’s assets and managed by the trustee of the trust. The grantor typically names him or herself as trustee 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. A couple, whether married or unmarried, can use a living trust to manage their property. If each individual spouse owns mostly separate property, each one of them can make separate living trust.
CREATING A REVOCABLE LIVING TRUST
The process of creating a living trust is relatively simple. An entity referred to as a trust is created and then property is transferred into it. All of the trust property that has documented title or ownership, like real estate, stocks, bonds, vehicles, and interests in corporations and limited liability companies, must be titled or registered in the trustee’s name. Items that do not have title or ownership documents, like jewelry, art, furniture, cash and collectibles, can be listed in a schedule that is included in the trust. In the trust, you name yourself as trustee and you are in control of the trust and the property in it during your lifetime. You also name a successor trustee to manage the trust and distribute the trust property once you pass away. At your death, the property in the trust goes to those whom you have named to inherit that property under the trust without having to go through probate court proceedings. If any of the beneficiaries are minors, you will have to take the step determining an adult to manage the property for the benefit of the minor child.
Advantages of a Revocable Living Trust
Control Over Assets
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.
Unlike wills, living trusts are not published to the public at your passing. Privacy with a revocable living trust is a benefit not granted to those with a simple will or those who die intestate (passing away without a valid 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.
Asset Protection for Beneficiaries
A common misconception about revocable trusts is that assets are protected from claims or judgments. 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. This may protect a beneficiary’s trust share from claims such as bankruptcy or divorce. 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.
You may or may not need a living trust as a part of your estate plan. Other probate avoidance instruments may be all you need to accomplish your goals. Contact Asset Law Firm to discuss your estate planning needs.