_location_geocentric domain was triggered too early. This is usually an indicator for some code in the plugin or theme running too early. Translations should be loaded at the init action or later. Please see Debugging in WordPress for more information. (This message was added in version 6.7.0.) in /var/www/parklinlaw_c_usr/data/www/parklinlaw.com/wp-includes/functions.php on line 6114A revocable living trust is a popular estate planning tool that you can use to determine who will get your property when you die. Most living trusts are “revocable” because you can change them as your circumstances or wishes change. Revocable living trusts are “living” because you make them during your lifetime.
A revocable living trust sometimes simply called a living trust is a legal entity created to hold ownership of an individual’s assets. The person who forms the trust is called the grantor or the trust maker, and they also serve as the trustee of this type of trust in most cases, controlling and managing the assets they’ve placed there. Some trust makers prefer to have an institution or an attorney act as trustee, although this is somewhat uncommon with a revocable trust.
Most people use living trusts to avoid probate. Probate is the court-supervised process of wrapping up a person’s estate. Probate can be expensive, time consuming, and is often more of a burden than a help. Property left through a living trust can pass to beneficiaries without probate.
A living trust document is a written document, signed by the trust maker and a notary public. The document must list the property in the trust, name a trustee, and name who gets the property when the trust maker dies. The trustee is the person who will take care of the property. While the trust maker is alive, the trustee is usually the trust maker and then a successor trustee takes over after the trust maker’s death.
After the trust document is made, the trust maker must transfer any property he or she wants covered by the trust into the trust. For many items, this requires simply including a list of property with the trust document. However, titled property (like real estate) must be retitled in the name of the trust. This is usually not complicated or difficult, but it must be done correctly or the titled property could end up in probate.
With both wills and revocable living trusts you can:
With a trust, not a will, you can:
With a will, not a trust, you can:
Assets placed in a revocable trust don’t avoid estate taxes, because the trustmaker and the trust share the same Social Security number. The trustmaker can reclaim the assets held within the trust anytime they like, so the IRS takes the position that they haven’t relinquished ownership as they would with assets placed in an irrevocable trust. The probate court says that they have indeed relinquished ownership, however. They’ve given the assets to the trust, even though they can take them back. The trust’s assets would not pass through probate for this reason, assuming that the trustmaker hasn’t taken them back as of their date of death. The successor trustee can therefore settle the trust outside of probate court, without supervision.
A revocable living trust covers three phases of the trust maker’s life: their lifetime, their possible incapacitation, and what happens after their death. The trust’s formation documents should include specific provisions allowing the trustmaker to invest and spend the trust assets for their benefit during their lifetime. The trustmaker can go about business as usual with the assets that have been transferred or funded into the trust’s ownership, assuming no one else has been appointed to act as trustee.
The trust agreement should also specify what happens if the trustmaker becomes mentally incapacitated and can no longer manage their own affairs and those of the trust. The trust documents should name a “successor trustee,” someone who will step in when and if the trustmaker is determined to be mentally incompetent and take over management of the trust. The successor trustee can then manage the trust maker’s finances and the assets that have been placed into the trust.
A revocable trust automatically becomes irrevocable when the trustmaker dies, because the trustmaker is no longer available to make changes to it. The named successor trustee steps in now as well, paying the trustmaker’s final bills, debts, and taxes just as they would if the trustmaker had become incapacitated. They would then settle the trust, distributing the remaining assets to the trust’s beneficiaries according to instructions included in the trust’s formation documents.
Trusts have many advantages, but one of the most significant might be that, unlike a last will and testament, a trust can prevent the details of one’s estate from becoming available to the public.
The whole concept of a living trust has a certain mystique. You might think they’re only for very wealthy people, or that they’re a lot more difficult to create than a simple last will and testament. But they can be a perfect estate-planning tool for others.
Revocable living trusts come with both pros and cons, from avoiding probate to the costs associated with setting one up. Deciding if one is right for you can depend on your personal concerns and circumstances.
Assets held in a trust avoid probate because the trust itself doesn’t die with its creator—called the “grantor” or “trustmaker” in legal terms. The trust remains up and running after the death of its grantor, and it can transfer its property to anyone the grantor has provided for in the trust’s formation documents, according to the grantor’s own terms. There’s no need for court oversight or involvement. Probate avoidance is probably the greatest advantage of a revocable living trust. It can be a particularly important consideration if you own real estate in more than one state because your loved ones would face two or more probate proceedings in this case if you just leave a will. Each property would have to be probated where it’s located.
A revocable living trust can also give your loved ones almost immediate access to cash during a difficult time. Your loved ones are typically unable to gain access to your bank account until a probate estate has been officially opened. Ask yourself how they’ll pay for funeral costs and other necessary expenses until that time.
Revocable living trusts aren’t just about death. They can allow your loved ones to avoid both a costly court-supervised guardianship if you become disabled as well as a costly court-supervised probate proceeding after you die. Your loved ones and your property would be subject to the restrictive rules of guardianship or conservatorship if you should become incapacitated. Forming a revocable living trust involves naming a successor trustee, someone to step in and manage the trust for you if a time comes when you’re no longer able to tend to your personal affairs yourself. Your successor trustee can take control of your trust assets without the interference of the court after following your trust’s provisions for determining your incapacity
Probate is a public proceeding. Anyone can go to the courthouse and take a look at each and every document filed there, including your will. Strangers can even look up court dockets and filings online in some states. Anyone can see the extent of what you owned to leave to others, and they can find out who got what when probate is opened and your will is placed with the court. Trust documents are never filed with a court, so they don’t become public records.
It generally costs more time and money to set up and fund a revocable living trust than to simply write a will—as much as three times more, at least initially. But in actuality, the cost can end up being pretty comparable, because probate costs money, too. That expense would have to be added to the cost of writing a will for a fair comparison. You must create new deeds and other documents to transfer ownership of your assets into the trust after you form it. You’ll have to contact your bank, investment and insurance companies, and transfer agents. You’ll have to change account and stock ownership and update beneficiaries. New stock certificates must be issued. Cars and boats must be retitled. This is the major drawback to using a revocable living trust for many people, but it’s not worth the time, money, and effort to create one if the trust isn’t fully funded. The type of assets you own and what must be done to get them funded into the trust should be carefully considered before you decide to use this estate-planning tool.
Your trust might only be partially funded when you die if you acquire new assets and neglect to move them into the trust. It can be surprisingly easy to forget to transfer title to newly acquired assets to your trust as time goes by. You’ll need a special type of will called a “pour-over will” to “catch” your unfunded assets in this case. The will “pours” them into your trust at the time of your death, as the name suggests. Your pour-over will must be probated, but it can still be an invaluable worst-case-scenario backup tool. Additionally, some assets can’t be owned by a trust. These include certain retirement plans and assets you might hold jointly with someone else. For example, you can’t transfer ownership of your half of a house to your trust if you own it as a joint tenant. You’ll need an alternate means of moving ownership of these assets, but you can still avoid probate if you make use of beneficiary designations.
Most states have specific statutes that dictate who can challenge a last will and testament and how long they have to do so. The time period can be as little as 30 to 120 days. Contrast this with contesting a living trust, which until recently was a wide-open court proceeding subject only to state-specific statutes of limitation. These statutes are usually one to five years, but they’re sometimes even longer.
The two basic types of trusts are a revocable trust, also known as a revocable living trust or simply a living trust, and an irrevocable trust. The owner of a revocable trust may change its terms at any time. They can remove beneficiaries, designate new ones, and modify stipulations on how assets within the trust are managed. Given the flexibility of revocable or living trusts in contrast with the rigidity of an irrevocable trust, it seems all trusts should be revocable.
However, there are a few key disadvantages to revocable trusts. Because the owner retains such a level of control over a revocable trust, the assets they put into it are not shielded from creditors the way they are in an irrevocable trust. If they are sued, the trust assets can be ordered liquidated to satisfy any judgment put forth. When the owner of a revocable trust dies, the assets held in trust are also subject to state and federal estate taxes.
Beneficiaries of a revocable trust who are young (not of legal age) and the minor’s real estate assets are held within a trust, it can replace the need to appoint a guardian, should the grantor die. In addition, if a grantor names beneficiaries who they deem unreliable with money, the trust can set aside a specific amount to be distributed at recurring intervals, or when they come of age (if they are minors).
The terms of an irrevocable trust, in contrast, are set in stone the minute the agreement is signed. Except under exceedingly rare circumstances, no changes may be made to an irrevocable trust. The main reason to select an irrevocable trust structure is taxes. Irrevocable trusts remove the benefactor’s taxable estate assets, meaning they are not subject to estate tax upon death. They also relieve the benefactor of tax responsibility for any income generated by the assets. Irrevocable trusts can be difficult to set up and require the help of a qualified trust attorney.
If you work in a profession where you may be at risk for lawsuits, such as a medical professional or lawyer, an irrevocable trust could be helpful to protect your assets. When assets are transferred, whether they are cash or property, to the ownership of an irrevocable trust, it means the trust if protected from creditors, and even legal judgment. However, an irrevocable trust is a bit more complicated to set up than a revocable trust, namely because it cannot be altered.
Both revocable and irrevocable trusts can be expensive to draw up, complex to undo, in the case of an irrevocable trust, and costly to rewrite, in the case of a revocable trust. It is very difficult to dissolve an irrevocable trust, and a revocable trust doesn’t necessarily protect your assets from creditors.
