Revocable Living Trusts

A Look at Revocable Living Trusts

We most frequently think of traditional Wills when it comes to estate planning. But the revocable living trust is a reasonable alternative to the Will and is gaining popularity because of several distinct advantages it offers. But use caution in selecting a "living trust" as your estate planning vehicle: it is not for everyone.

A revocable living trust is a document drafted for the purpose of assuming ownership of an individual’s or married couple’s assets and distributing them after death. In most cases, the person placing assets into the trust (the “grantor”) retains control of the assets while they are in the trust, acts as his/her own trustee, and retains the power to revoke the trust at any time.

The idea is that when the grantor dies, there is no estate to probate because that individual has no assets. The assets are owned by the revocable living trust. The trust is a separate legal entity that does not die when the grantor dies. A successor trustee, usually a family member, then distributes the trust’s assets to the grantor’s heirs, acting much like a personal representative in a probate estate; but without the requirement of court supervision.

A Revocable Living Trust has Several Advantages

1. A living trust provides a relatively simple means by which a successor trustee can assume control of the grantor’s financial affairs should she become incapacitated and unable to do so.

2. In addition, it eliminates the need for the probate of an estate, if written correctly and if all of the grantor’s assets are placed in the trust.

3. It provides an opportunity to reduce estate and inheritance taxes (assuming the proper additional provisions are included), and it provides a means for assets to receive full "stepped-up valuation".

4. A living trust is also private and relatively easy to modify or revoke.

There are other advantages to a revocable living trust

A simple Will offers no protection should an individual become incapacitated. It only takes effect once the individual dies. Instead, if an individual becomes unable to manage her own affairs, the family must petition the court for the appointment of a guardian.

A Will certainly allows the deceased person to dispose of her estate in the manner she prefers when she has passed away. However, to carry out her Will, her heirs must submit to the jurisdiction of probate court, which can typically take approximately 10 to 18 months to complete. It can also be very costly, including court costs, attorney’s fees and personal representative fees.

In addition, any court proceeding is a matter of public record.A revocable living trust can be an advantageous alternative for many individuals, although it is not acceptable for everyone. It is versatile, and can be individually tailored to the needs and desires of those on whose behalf the trust is created.

As mentioned, a revocable living trust means that the grantor does not hold title to any assets that are held inside the trust; the trust holds title to those assets. However, although the grantor has relinquished up ownership of the assets, she still retains control of those assets. Since the document is written while she is still living, she appoints herself as trustee of her own trust, and she continues to have the same power and ability to do whatever she wishes with her assets.

In addition to naming the grantor as the trustee, a typical living trust will also name a successor trustee. This is usually a family member who knows what the grantor desires and is capable of assuming control of the grantor’s affairs should she become incapacitated; the successor trustee will also take charge of the trust should she die.

The significance of not "owning" anything becomes extremely important when the grantor ultimately passes away. Since the assets are in the trust, none of those assets are titled in the grantor’s name; thus, upon your death, there is nothing to probate. If she is married, the surviving spouse typically becomes a surviving trustee, and continues to have the same power over those assets that she once did. Upon the surviving spouse's death, there is still nothing to probate, since the assets were in the trust name and for the surviving spouse.

The importance of understanding the trust documents--and implementing it--cannot be understated. The key to the proper use of a revocable living trust is to move most, if not all, of the grantor’s assets into the trust. Too many situations exist where an excellent trust document has been created but is, in reality, worthless because the assets have never been transferred or conveyed into the trust.

Understanding the advantages of having a revocable living trust and deciding that you want your own living trust are not enough. An individual must understand how a trust works, and the particular advantages it can bestow on her personal financial and estate planning goals. It cannot work to its best advantage without that basic understanding. The revocable living trust, like a standard Will, should be individually tailored to the needs and desires of the person for whom it is written. She decides what is best for her particular situation.