Living Revocable Trust

is a common legal arrangement that allows you to have control over your assets during your lifetime and determine how they are distributed after your death. In this article, you will learn about the benefits of setting up a living revocable trust, such as avoiding probate and maintaining privacy. We will also discuss the steps involved in creating a living revocable trust and how it can be customized to fit your specific needs. By the end of this article, you will have a better understanding of why a living revocable trust may be a valuable tool for your estate planning strategy. Ready to take control of your assets? Contact our estate planning lawyer for a consultation today.

What is a Living Revocable Trust?

A living revocable trust, also known as a revocable living trust or simply a living trust, is a legal document that allows individuals to transfer their assets into a trust while maintaining control over those assets during their lifetime. This type of trust is created and becomes effective while the individual is still alive, hence the term “living.” Unlike other forms of trusts, a living revocable trust can be altered, modified, or revoked at any time during the individual’s lifetime.

Definition of a Living Revocable Trust

A living revocable trust is a written legal document in which an individual, referred to as the trust creator or grantor, establishes a trust to hold and manage their assets for the benefit of themselves and their designated beneficiaries. The trust is managed by a trustee, who can be either the trust creator or another individual or entity appointed by the trust creator. The trust creator has the power to make changes to the trust, such as adding or removing assets or changing beneficiaries, as long as they are mentally competent to do so.

Benefits of a Living Revocable Trust

There are several benefits to creating a living revocable trust:

Probate Avoidance: One of the main advantages of a living revocable trust is its ability to avoid the probate process. When an individual passes away, their assets held in a trust can be distributed to beneficiaries without the need for probate court involvement. This can save time, reduce costs, and maintain privacy.
Privacy: Trust documents are not required to be filed with the probate court, which means that the details of the trust and its assets remain private. This is in contrast to a will, which becomes a public record upon probate.
Flexibility and Control: As the trust creator, you have the power to manage and control the trust assets during your lifetime. You can distribute assets to beneficiaries according to your wishes, and you have the ability to make changes to the trust as your circumstances or wishes change.
Incapacity Planning: A living revocable trust can provide for the management of your assets and the care of your affairs in the event of your incapacity. You can designate a successor trustee to step in and handle your financial affairs according to your instructions, without the need for court intervention.
Avoidance of Estate Taxes: While a living revocable trust does not provide direct estate tax benefits, it can be structured in a way to minimize estate taxes. By using certain estate planning techniques, such as creating sub-trusts for each spouse, the trust assets can be passed on to beneficiaries while maximizing the available estate tax exemptions.

Creating a Living Revocable Trust

Creating a living revocable trust involves several key steps:

Selecting a Trustee

The trustee is responsible for managing and administering the trust assets according to the terms of the trust agreement. When selecting a trustee, it is important to choose someone who is trustworthy, organized, and capable of handling financial matters. Many individuals choose to serve as their own trustee initially, and then appoint a successor trustee to take over in the event of their incapacity or death.

Identifying Trust Assets

Before creating a living revocable trust, it is necessary to identify and list all the assets that will be transferred into the trust. This can include real estate, bank accounts, investments, business interests, and personal property. It is important to work with an estate planning attorney to ensure that all assets are properly titled in the name of the trust.

Drafting the Trust Agreement

The trust agreement is the legal document that establishes the living revocable trust and outlines its terms and conditions. It includes provisions such as the powers and duties of the trustee, the distribution of assets upon the trust creator’s death, and any specific instructions or restrictions regarding the management and distribution of assets. It is crucial to work with an experienced estate planning attorney to draft a trust agreement that meets your specific needs and goals.

Funding the Trust

After the trust agreement has been drafted and executed, the next step is to transfer ownership of the identified assets into the name of the trust. This process, known as “funding the trust,” typically involves changing the title of assets to reflect the trust as the new owner. For example, real estate may need to be retitled in the name of the trust, and bank accounts may need to be transferred into trust accounts. Funding the trust ensures that the assets are properly held and managed by the trust.

Managing a Living Revocable Trust

Once a living revocable trust has been created and funded, it requires ongoing management and administration. Here are some key aspects of managing a living revocable trust:

Responsibilities of the Trustee

The trustee has a fiduciary duty to act in the best interests of the trust and its beneficiaries. This includes managing and investing trust assets, keeping accurate records, filing tax returns on behalf of the trust, and making distributions to beneficiaries as directed by the trust agreement. The trustee must act prudently and responsibly, and make decisions that align with the trust creator’s wishes and intentions.

Retaining Control over Trust Assets

Despite transferring assets into the trust, the trust creator retains control over those assets as the trustee or as a co-trustee if they choose to appoint another trustee. This means that the trust creator can buy, sell, or manage the assets held in the trust, just as they would if the assets were held in their own name.

Modifying or Revoking the Trust

As the trust creator, you have the power to modify or revoke the living revocable trust at any time. If you wish to make changes to the trust, such as adding or removing assets, changing beneficiaries, or amending specific provisions, you can do so by executing a formal written amendment or restatement of the trust agreement. To revoke the trust entirely, you would need to execute a formal written revocation of the trust.

Handling Trust Distribution

Upon your death, the trust assets will be distributed to the beneficiaries according to the provisions outlined in the trust agreement. The trustee is responsible for ensuring that the assets are distributed in a timely and efficient manner, in accordance with your wishes. This can provide a smooth transition of assets to your loved ones, without the need for probate.

Comparison to Other Estate Planning Tools

It is important to understand how a living revocable trust compares to other estate planning tools, such as a will or an irrevocable trust.

Living Revocable Trust vs. Will

A will is another common estate planning tool that allows individuals to specify how their assets should be distributed after their death. While both a living revocable trust and a will can accomplish this goal, there are some key differences. Unlike a will, a living revocable trust allows for the avoidance of probate, provides for incapacity planning, maintains privacy, and offers flexibility during the trust creator’s lifetime. However, a will can be simpler and less costly to create and may be sufficient for individuals with smaller estates or fewer estate planning needs.

Living Revocable Trust vs. Irrevocable Trust

An irrevocable trust, as the name suggests, cannot be modified or revoked once it has been established. While a living revocable trust offers flexibility and control, an irrevocable trust provides certain tax and asset protection benefits. Assets transferred into an irrevocable trust are generally considered removed from the trust creator’s estate for tax purposes, potentially reducing estate tax liabilities. Additionally, assets held in an irrevocable trust may be protected from creditors or lawsuits. However, once assets are placed in an irrevocable trust, the trust creator gives up control and ownership over those assets.

Factors to Consider Before Establishing a Living Revocable Trust

Before deciding to establish a living revocable trust, there are several factors you should consider:

Age and Health

While a living revocable trust can be created at any age, it is generally more advantageous for individuals who have accumulated significant assets or who are approaching retirement age. If you are in poor health or have a shortened life expectancy, the benefits of a living revocable trust may be reduced, as the assets held in the trust may still be subject to estate taxes or other complications.

Size of Estate

The size of your estate is an important consideration when determining whether a living revocable trust is appropriate for your situation. If your estate is relatively small and does not include complex assets, such as business interests or multiple pieces of real estate, a simple will may be sufficient to address your estate planning needs. However, for larger estates with multiple assets and beneficiaries, a living revocable trust can provide more comprehensive control and protection.

Privacy Concerns

If you value privacy and want to avoid the public scrutiny that can come with the probate process, a living revocable trust may be a suitable option. Probate involves court proceedings that become a matter of public record, allowing anyone to access information related to the estate. By utilizing a living revocable trust, you can keep the details of your assets and beneficiaries private.

Desire for Control and Flexibility

If you want to maintain control over your assets during your lifetime and have the flexibility to make changes to your estate plan as needed, a living revocable trust can offer the desired level of control and flexibility. With a trust, you can add or remove assets, change beneficiaries, and modify provisions to reflect your changing circumstances or wishes.

Common Misconceptions about Living Revocable Trusts

There are several misconceptions about living revocable trusts that should be cleared up:

Avoiding Estate Taxes

Contrary to popular belief, a living revocable trust does not provide direct estate tax benefits. While it can be used as part of a comprehensive estate plan to minimize estate taxes, it does not offer automatic tax savings. Other estate planning techniques, such as creating irrevocable trusts or utilizing gifting strategies, may be more effective for estate tax planning.

Protecting Assets from Creditors

Assets held in a living revocable trust are generally not protected from creditors. Since the trust creator retains control and ownership over the trust assets, they are still considered part of their personal estate and can be subject to claims from creditors. If protecting assets from creditors is a concern, other types of trusts, such as irrevocable trusts, may be more appropriate.

Avoiding Probate Completely

While a living revocable trust can help avoid probate for assets held in the trust, it does not cover all assets or completely eliminate the need for probate. Assets that are not properly funded into the trust or that are specifically designated to pass outside of the trust, such as life insurance policies with named beneficiaries, will still be subject to probate. It is important to work with an experienced estate planning attorney to ensure that all assets are properly included in the living revocable trust.

Role of an Estate Planning Lawyer

Creating a living revocable trust is a complex legal process that requires careful consideration of your specific circumstances and goals. While it is possible to create a living revocable trust using online templates or DIY kits, it is highly recommended to consult with an experienced estate planning lawyer. Here are a few reasons why hiring an estate planning lawyer is beneficial:

Why Hire an Estate Planning Lawyer

Expertise and Knowledge: Estate planning lawyers specialize in this area of law and have a deep understanding of the legal and financial complexities involved. They can guide you through the process, explain the legal terminology, and ensure that your trust is drafted properly and in compliance with state laws.
Tailored Advice and Planning: Every individual’s situation is unique, and an estate planning lawyer can provide personalized advice based on your specific needs and goals. They will take into account factors such as your family dynamics, financial situation, and long-term objectives to create a trust that aligns with your wishes.
Avoiding Costly Mistakes: DIY estate planning may seem cost-effective initially, but it can lead to costly mistakes and complications down the road. Estate planning lawyers have the knowledge and experience to identify potential pitfalls and ensure that your trust is legally sound and effective.
Ongoing Support and Maintenance: Estate planning is not a one-time event. Your circumstances and goals may change over time, and your trust may need to be updated or amended accordingly. An estate planning lawyer can provide ongoing support and help you navigate any changes or updates to your trust.

Consulting an Estate Planning Lawyer for a Living Revocable Trust

If you are considering establishing a living revocable trust, it is highly recommended to consult with an estate planning lawyer. They can help you understand the intricacies of the trust creation process, assist in drafting the trust agreement, provide advice on asset funding, and ensure that all legal requirements are met. An estate planning lawyer can also answer any questions you may have and help you make informed decisions regarding your estate planning goals.

Potential Issues and Pitfalls to Avoid

While a living revocable trust can be a valuable estate planning tool, there are potential issues and pitfalls that should be avoided:

Improperly Funding the Trust

One common mistake is failing to properly fund the trust by transferring ownership of assets into the trust. It is crucial to ensure that all assets intended to be held by the trust are titled in the name of the trust. Failure to do so may result in those assets being subject to probate.

Failure to Update the Trust

As mentioned earlier, a living revocable trust can be modified or revoked at any time. It is important to periodically review and update the trust to reflect any changes in your financial situation, family circumstances, or estate planning goals. Failing to update the trust may result in unintended consequences or ineffective distribution of assets.

Disputes Among Beneficiaries

A living revocable trust can help minimize disputes among beneficiaries by clearly outlining your wishes and intentions. However, family dynamics and relationships can sometimes create conflicts. To mitigate potential conflicts, it is crucial to communicate your estate plan to your loved ones and provide a clear understanding of how the trust assets will be distributed.

Frequently Asked Questions about Living Revocable Trusts

Here are answers to some common questions about living revocable trusts:

Do I still need a will if I have a living revocable trust?

While a living revocable trust can serve as the primary estate planning tool, it is still advisable to have a pour-over will. A pour-over will is designed to “catch” any assets that were not properly transferred into the trust before the trust creator’s death. These assets will then be distributed according to the terms of the trust.

Can I serve as my own trustee?

Yes, you can serve as your own trustee initially and maintain control over the trust assets. However, it is recommended to appoint a successor trustee who will step in and manage the trust in the event of your incapacity or death. This ensures a smooth transition and continuity of asset management.

How do I transfer assets into the trust?

To transfer assets into the trust, you will need to change the ownership or title of the assets to reflect the trust as the new owner. This process varies depending on the type of asset. For example, real estate may require a new deed transferring ownership to the trust, while bank accounts may require updating the account registration to include the trust as the account owner.

Conclusion

A living revocable trust is a versatile and effective estate planning tool that offers numerous benefits, such as probate avoidance, privacy, flexibility, and incapacity planning. By creating a living revocable trust, you can have greater control over the distribution of your assets, keep your affairs private, and provide for your loved ones in a seamless manner. It is crucial to seek the guidance of an experienced estate planning lawyer to ensure that your trust is properly drafted, funded, and managed. Take the first step towards securing your assets and achieving peace of mind by consulting an estate planning lawyer today.