What is a Revocable Living Trust?
A Revocable Living Trust is a trust which you create during your lifetime. It is also been called an Intervivos Trust which means during your life. The fact that the trust is revocable means that it may be changed or terminated at your wish as long as you continue to be competent at that time.
Why should I use a Revocable Living Trust versus a Will?
One of the major benefits of having a Revocable Living Trust is allowing you to avoid probate. Also it will allow you to seamlessly manage your assets if you become incapacitated. Please note however that the Revocable Living Trust does not replace your will, although it will act similar to a will and distribute the property pursuant to your wishes. Any good estate plan including a Revocable Living Trust will include the use of a Pour Over Will which will pour any assets which have not been titled into the trust into in upon your death.
How does my Revocable Living Trust function?
During your lifetime your Revocable Living Trust will pay all of income made to you. In addition it allows for you to use any principle that is needed or requested. Upon your death the Revocable Living Trust will distribute pursuant to your distribution plan in a manner similar to your will. As previously mentioned that there are several advantages of a Revocable Living Trust versus a will.
What exactly are the benefits of a Revocable Living Trust?
The use of a Revocable Living Trust allows for property to be managed uninterrupted by incapacity. Through proper planning and funding of a Revocable Living Trust if you were to become incompetent your Successor Trustee will be able to step in and manage all your financial affairs for any items that are in the trust. By doing this planning you can avoid the painful and very expensive process of having a guardian appointed if you were to become incapacitated. Another major benefit of the Revocable Living Trust is that it avoids probate. Please note that by doing a Revocable Living Trust you will not avoid all costs, as you will still have to pay legal fees for the drafting of the trust and other incidental expenses. However the use of the trust will allow your beneficiaries to avoid much of the time delays and aggravations which are associated with the probate process. Further if you have property in other states than where you reside it will also allow you to avoid probate in those states. Finally some people like that a Revocable Living Trust provides privacy versus the probate process.
Are there disadvantages to a Revocable Living Trust?
One of the disadvantages of the Revocable Living Trust is that any expenses which you incur are done so immediately. The expenses are not deferred until your death, as is the case in probate. In addition by properly funding the trust there may be incurred expenses for retitling of assets depending on your situation. Finally there may also be fees for a Trustee who is allowed a commission for managing the trust. Please note however these fees are generally waived and not taking because normally the trustee is a family member who is going to be an ultimate beneficiary of the trust.
What are the tax consequences of having a Revocable Living Trust?
During your lifetime and as long as you are the trustee and managing the trust all of the items which you place into the trust will be taxed using your social security number, therefore you will not see any change at all tax wise. All income will be reported on your normal income tax return as it was before you set up the trust. Also note the trust will not have an effect on estate or gift taxes as when you pass away any assets which are in the trust will be considered in your taxable estate for estate tax purposes. However proper planning with your Revocable Living Trust will allow you to minimize your estate taxes especially between a married couple taking advantage of the exemptions allowed by law.
If I want to change or revoke the Revocable Living Trust, how do I go about doing this?
Generally to amend or change your Revocable Living Trust or to revoke it you must have proper papers prepared to reflect any changes. If you decide that you want to change or revoke your trust you should get in touch with your attorney in order to make the changes or to properly revoke it.
What happens to my Revocable Living Trust upon my death?
Upon your death your trust will become irrevocable and is no longer able to be amended or changed. All of the assets that were in your trust will still be considered in your estate for tax purposes and the Trustee or Successor Trustee if you were still the Trustee at the time of your death will then take over duties and distribute the assets according to your particular estate plan. Please note the Trustee may also be responsible for some miscellaneous such as insuring that a final tax return is prepared and upon distribution of the trust that a final accounting has been done. It is a good idea for the Trustee at the time to contact your attorney to ensure that all things are properly concluded at your death.
What do the terms Grantor Trustee and Beneficiary mean and what are their responsibilities?
The Grantor in this case is you, it is the person who sets up the trust. It is generally also the person who funds the trust. The Trustee is the person who is responsible for administering the trust, investing the assets and handling any of the administrative duties which need to be performed. Finally the Beneficiary is the person who benefits from the trust. This is the best position to be in with any type of trust. Normally a Revocable Living Trust is set up such that you take all three of these duties initially. You are the person who sets up the trust, you are the trustee who administers the trust during your lifetime and you are the one who is paid the income and benefits as a beneficiary of the trust during your lifetime.
If I have a Revocable Living Trust do I still need other estate planning documents?
As mentioned before the Revocable Living Trust is only a part of your estate plan. You still need a Will, which is generally a Pour Over Will which acts as a safety net to pour anything that was not properly titled into the Trust into the Trust when you pass away. Also a Power of Attorney is still a very important document as it allows continued planning if you become incapacitated. It will also allow for the Power of Attorney to continue to fund the trust if it is only partially funding when you become incapacitated. Finally documents for health care decision such as the Health Care Proxy and/or the Living Will are still important documents, as they are needed in to handle your health care type decisions.
How important is the titling of property with respect to my plan?
Retitling property into the trust is a very important part of your estate plan. Without retitling the assets properly into the trust you will not be able to avoid probate if this is one of your goals. In addition if property is not titled correctly your estate plan may not function correctly. For example if you intend for a certain account to be distributed through the trust however it was still owned in joint name when you pass away that property will not be distributed pursuant to the trust and will instead pass directly to the joint owner of the account.