Revocable Living Trust

There are several types of trusts, including the following:

• Revocable living trusts: These are created and active during the lifetime of the grantor
• Testamentary trusts: These are formed after the grantor's death
• Irrevocable trusts: These can't be changed or revoked by the grantor

This article focuses on revocable living trusts. A revocable living trust is a popular estate planning tool that lets you control how your property is handled during your life and after death. A trust could help you avoid the probate process. Executing a trust document and funding the trust with your assets helps avoid probate. It can also ensure that the property transfers quickly and privately.

The trust is a legal document that partially replaces a last will and testament. As the “grantor" or “settlor," you create the trust agreement and fund the trust. Most states require your signature and a notary endorsement before your trust is enforceable.

Trust Assets

Assets you transfer into the name of the trust become trust assets. You can transfer a variety of assets into the trust's name, including the following:

• Real estate, such as your house
• Bank accounts
• Retirement accounts
• Brokerage accounts
• Life insurance policies

Unless you take this step to fund your trust, your trust will not be effective. An attorney can help you through this step of changing the ownership from you to yourself as the trustee.

Trustees

Trust administration is the responsibility of the trustee. A trustee—usually you or someone you have confidence in—manages the property for your or your family's benefit. The trustee is a fiduciary, which is a relationship of trust.

Thus, the trustee must manage the trust property for the named beneficiaries and act in the best interest of the beneficiaries of the trust. A revocable trust is called a living trust because it's created when you are alive. Since it's revocable, you can change or cancel the trust any time before your death. You can even be the trustee of the trust while living. In the trust document, you should appoint a successor trustee. This individual will serve when the named trustee is unable or unwilling to serve as a trustee.

Benefits and Limitations of a Living Trust

Creating a trust is a personal decision based on your unique circumstances. A living trust has many benefits. However, it may not do everything you need. Let's look at what a revocable living trust can and can't do for you:

Benefits of a Living Trust

• Provide for you during incapacity: An adequately executed living trust can take care of you if you cannot care for yourself. This avoids the delay of court-ordered guardianship. This feature highlights the importance of adequately funding your trust. Be sure to name an alternate trustee to manage the trust if you cannot care for yourself.
• Avoid probate: Probate is a legal process that transfers property after a person's death. Transferring legal title to the trust means the property is no longer part of your estate. Your estate can avoid probate court and the hassle that comes with it. The probate process can be costly and time-consuming.
• Protect privacy: There's typically no public record required, unlike with a will. If a property is placed in the trust after your death, however, it may appear in a public record.
• Greater control: You can leave assets to minor children or someone who may have trouble managing money. A living trust gives you control over the manner and timing of payments. For example, you can leave money to your 12-year-old granddaughter to pay for college or to help with a down payment on her first house.
• Provide for adult children: Trusts help provide for adult children who remain dependent due to special needs. An adult child may require ongoing care due to mental or physical disabilities.
• Easy to create and change: For most simple estates, a living trust has fewer legal formalities than a will, making it easier to create and change without a lawyer's help. Each state controls the rules for living trusts. It's critical to research your local trust laws or get help from a local estate planning attorney.
• Tax benefits: Individuals, especially high-net-worth ones, can benefit from creating a trust for tax purposes. Trusts can lower your overall income tax liability in some circumstances. For example, a trust can also reduce or eliminate federal estate taxes for more complicated living trusts.
• Hold property from other states: If you own property in other states, a living trust will protect your heirs from needing to administer out-of-state probate procedures. For example, you live in Illinois but also own property in Florida. Placing the Florida property in a trust will avoid the need for opening a probate matter in Florida probate court.

Limitations of a Living Trust

• Immediate tax benefit: Since you retain the right to use and enjoy the property, in the eyes of tax authorities, it remains your taxable property. If you receive income from the trust, you must report the income on your tax return.
• Cost savings: Revocable living trusts can be expensive to set up, plus there are annual maintenance fees. There may be some cost savings by eliminating probate costs and other incidental fees.
• No creditor protection: You create a trust to control your property's distribution. Although some trusts can protect your assets from creditors, a revocable living trust cannot. With a revocable trust, you can terminate it at will. So, a creditor can force the termination to get the assets. Thus, a revocable living trust does not provide asset protection. In contrast, an irrevocable trust can offer a certain level of asset protection.

Getting Started

In some circumstances, it may be possible for you to draft a revocable trust on your own. You can create a document stating the trust is designed to hold the property for the benefit of yourself or someone you specify. You can name yourself as the trustee, but be sure to select an alternate or a successor trustee.

Next, list the assets placed in the trust. Remember, the trust becomes the owner of the property you transfer. That's why you must change the name on the title to that of the trust. Rest assured, you keep the right to manage your property in a living trust, even if you're not the trustee. You have the right to change the terms of the trust or remove the trustee or property, at any time.

When you've finished writing your trust, sign it and have it notarized. You can fund your trust using a deed or standard transfer document to transfer the property into the trustee's name, per the trust's terms.

Understanding the laws in your state to form and fund your trust is essential. Errors can make your trust invalid and without any legal effect. Consult a lawyer or other estate planning professional if you have any concerns.

Attorney Review of Your Trust Plans

Proper planning makes it easier for your loved ones to fulfill your wishes once you're gone. It can also help avoid arguments among those you leave behind. Revocable living trusts are valuable to many estate plans but are not for everyone.

When planning for your future, it's crucial to obtain legal advice from an attorney familiar with the laws of your state. When you speak with an experienced estate planning attorney to discuss your situation, you can learn which estate planning options are best for you.