Revocable Living Trust Info
Everyone should have a will that communicates their intentions and desires for how their financial and personal affairs should be handled upon their death. But when you absolutely, positively want your assets to be there for your survivors when they need them the most, you should consider a revocable living trust. Also known as an inter-vivos trust, meaning that it is drafted during one's lifetime, it is also revocable, which means that the terms of the trust can be changed up until the time of death.
Advantages of a Revocable Living Trust
A revocable living trust holds several advantages for estate disposition over just a will by itself:
- Avoids Probate Costs - Keeps the estate out of probate proceedings which can save court, attorney and executor fees.
- Avoids Probate Delays - When assets are allowed to pass outside of probate they are not bogged down by court proceedings.
- Avoids Publicity - By avoiding probate, your estate settlement is kept out of the public record.
- Ensures Management Continuity - Provides for a professional manager to take over the management of investment assets to maintain their benefit for the survivors
- Ensures Trustee Succession - In the event the designated trustee can no longer perform the duties it provides for the appointment of a successor
How a Revocable Living Trust Works
Parties to the Trust
The trust is comprised of three main parties: A grantor, a trustee, and a beneficiary
Grantor - This can be one or more people in the family, typically the husband and the wife who will also serve as the trustee while they are living.
Trustee - This is the designated owner of the trust and its property and the person(s) who actively manages the assets within the trust. In most cases the trustee is also the grantor up until his or her death, or incapacitation, at which time the trust names another person or trust company to take over the management of the trust assets.
Beneficiary - This is the person designated by the grantor to receive the trust assets or income. The beneficiary can be one of the surviving grantors, surviving family members or an entity such as a charitable organization.
Establishing the Trust
Revocable living trusts are fairly easy to establish. The first step is to have an attorney draw up the trust agreement which will include all of the grantor's terms, trustee and beneficiary designations, and declarations of assets. Once the grantor and the trustee sign the agreement, the grantor then transfers the title of property and assets to the trustee.
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The Trust as a Living Document
The grantor may change the terms, designations and declarations of the agreement at any time while he or she is alive. The trust can also be completely revoked is desired. This is essential because it is a living document that must respond to the changing life situations of the grantors and their beneficiaries. As life unfolds, changes in marital status, financial circumstances, family situations, and health conditions must be able to be reflected in the trust. Many people are just more comfortable when they know that it can all be undone at any time.
Most revocable trusts are structured to become irrevocable after the death of the grantor. In the case of a married couple, both grantors of the trust, it could also be structured so that it becomes irrevocable after the death of the first spouse.
Where There's a Trust, There's a Will
Although the revocable trust becomes the primary estate planning directive, it is important that the grantor also have a will in place. The will, with the trust as the primary beneficiary, is still the executing document which activates the trust. This also provides a "catch all", or "pour over" of assets that somehow didn't get transferred into the trust while the grantor was living and ensures that they will also be distributed or managed based on the terms of the trust.
The other key element of the will, establishing guardianship, cannot be done through a revocable living trust. This can only be done through a will.
What a Revocable Living Trust Can't Do
The primary purpose of a revocable living trust is to ensure that the property of the grantor is managed or distributed without the encumbrance of probate delays and expenses. As for other estate settlement objectives such as minimizing estate taxes, a revocable trust is not a useful vehicle.
It also can’t avoid all costs that are associated with the distribution or management of the trust assets. There are potential expenses that must be paid from the trust assets such as title transfer, investment or property management fees, trustee expenses or salary (if they are actively managing an assets), or any legal fees that are incurred.
Most revocable living trusts are not very complicated consisting of a few assets such as a home, a savings or investment account, and, perhaps some additional real estate. Other assets such as retirement accounts, life insurance and annuities all pass by contract, so they do not have to be named in the trust (although, the trust can be named as a beneficiary in these contracts). Even with small estates, if there is a concern over how quickly the surviving family can receive the assets or the income from the estate, a revocable living trust should be considered as a key element in your estate plan. It is very important that you have your trust drafted by a qualified estate attorney and that you review the trust on a periodic basis.
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