A revocable living trust or RLT should outline your unique financial objectives and personal values and can be adapted as circumstances or your wishes change. The “living” part indicates the trust takes effect during the life of the grantor, but also operates after the death of the grantor. A revocable living trust is made to avoid probate but has many other benefits and can reduce estate taxes. Below you’ll find an excellent overview.
A trust is a three-part agreement among the grantor, the trustee, and the beneficiary(ies).
The grantor (sometimes called a settlor, trust-maker or trust creator) is the person or people who creates the trust; the trustee is the person or people who manage the trust; the beneficiary(ies) is the person or people who benefit from the trust. Often, the same people have all three positions: the grantor is the initial trustee and is the primary beneficiary of the trust.
A basic trust plan may run anywhere from $2,000 to $3,000 or more, depending on complexity. There are additional costs for making changes and administration costs after your death.
Different types of trusts and trustees can require different fees for administration and wealth management. As you develop your trust strategy, consider the costs involved and weigh them carefully in relation to the benefits.
Advantages of a Revocable Living Trust
Avoidance of Probate
Probate is the legal proceeding to settle your affairs after your death, including changing ownership of your assets. Not all assets go through probate, but many do. Unfortunately, probate can be costly and time-consuming. Avoiding probate is considered to be one of the primary benefits of a revocable trust. This can be especially beneficial to avoid several probate proceedings if you have real estate in more than one state. A revocable trust can help you avoid probate for virtually every asset you own and allows your property to be controlled by the terms of the trust. Property can often be distributed to the beneficiaries shortly after the grantor’s death, avoiding much of the delay encountered with probate administration. Also, court approval is usually not necessary to sell an asset held by a trust, thus avoiding further delay. Trust documents stay private and are not public record. Is avoiding probate worth your while?
Maintain Control of Your Estate During Incapacity
If you become disabled or incapacitated, and you have neither a revocable trust nor a power of attorney, then a guardian or conservator may be necessary. Court proceedings to appoint a guardian or conservator can be lengthy, expensive, and are public record. By establishing a revocable living trust, dealing with your incapacity may be kept private and handled according to the terms of your trust. If you become physically or mentally incapacitated, your successor trustee can step in to enforce your wish without court involvement. This is a primary benefit of setting up a trust.
Availability of Assets at Death
Trust assets may be available shortly after your death to pay administration expenses, estate taxes, debts, and other expenses. In contrast, with probate proceedings, some assets may be available quickly, but most assets may not be available for 5 to 7 months or longer, which is the typical duration of a straight-forward probate proceeding in Oregon.
Protects Children’s Inheritance If Surviving Spouse Remarries
Consider the following scenario. A husband and wife are married for 20 years and have two children. They’ve prepared an estate plan which passes the entire estate to the surviving spouse. The husband passes away. The wife inherits their estate. She is a widow for 8 years and is eventually encouraged and convinced by family and friends to accept the courting of a gentleman in a similar situation and eventually they get married with children on both sides. At this point this family could have some serious problems due to an estate plan which does not provide for the complexities of the new relationship or the wishes of the first husband. The surviving spouse wants everyone to be happy, but scarcely knows what’s fair given her emotional connection to all involved. With a revocable living trust or a joint living trust they can specify that the deceased spouse’s half be distributed to the surviving spouse in an irrevocable trust. A ‘contract to make a will’ can then be drawn for the surviving spouse’s entire estate and be distributed to their children after she is deceased. In this configuration both husband and wife’s wishes are taken into account, and the inheritance structure is greatly simplified without unnecessary complexity which can result in heartache.
Simplifies Estate Administration
In most cases having a trust will simplify administrating your estate by avoiding public court probate proceedings. Although trusts simplify this process, an estate administration by any method requires the following:
- Determining and paying the decedent’s lawful debts and taxes.
- Determining and valuing the decedent’s assets.
- Determining who is entitled to the decedent’s assets.
- Transferring the decedent’s assets to the proper beneficiaries.
Reduces Chance of Court Disputes Over Your Estate
A well thought out and implemented trust clarifies your wishes and reduces the possibility of court disputes over your assets. Your beneficiaries may be under stress and emotional and may base their decisions on misperceived notions or bias. Having a concrete plan for everyone dispels doubt and confusion, reduces adversarial behavior, and helps each beneficiary better understand your intentions and desires in the disbursement of assets.
Preserves Your Privacy
In a probate proceeding after your death, your Will becomes a public record. A living trust keeps your personal and financial affairs confidential. Courts are not generally involved in any proceedings to distribute the assets owned by the trust. The trustee can choose to send beneficiaries the portion of the trust agreement that pertains to them in order to maintain the privacy of the deceased, as opposed to a complete copy. In this day and age, there are good reasons to maintain privacy for everyone involved.
Further Management of the Inheritance for Your Loved Ones
Some of your loved ones may be too young to inherit, or may have a disability or condition that requires special planning. A living trust can be used to help manage an inheritance under these circumstances:
- Child with disabilities
- Child with drug and alcohol problems
- “Spendthrift” child that requires structured distributions to preserve wealth
- Conditional distributions based on finishing a degree, or other accomplishment.
Can Help Minimize Estate taxes
While a revocable living trust is not a good tax minimization tool on its own, provisions can be included in the trust documentation to transfer wealth to a credit shelter trust in the event of your death. Large estates that exceed the combined estate tax exclusion amounts can benefit from this tool.
Can Provide Segregation of Assets for Married Couples
This is useful for married couples with separate property that was acquired before the marriage. A living trust can help segregate those assets.
Life Events That Require an Estate Planning Review
- Getting married
- Divorce or death of a spouse
- Purchasing or refinancing a home
- New accounts
- New children or grandchildren
The Bottom Line
A revocable living trust is a strategy that can be a great fit for some, but it’s not the perfect tool for everyone. Fortunately we can guide you with answers to a few basic questions.
Frequently Asked Questions
Is a General Durable Power of Attorney or an Advance Directive Still Needed?
Yes. A General Durable Power of Attorney is used to give another person legal authority to take certain actions on your behalf. The trust grantor should consider establishing a general durable power of attorney to accomplish objectives which cannot be attained with a trust.
An advance directive for health care has a different function. It is used to give other people authority to talk with your doctors, access your medical records, and make decisions about life support for you. Whether a person has a trust usually has no bearing on the decision to have or not to have an advance directive.
Does a Revocable Living Trust Reduce Income Taxes or Estate Taxes?
During the grantor’s lifetime, a revocable living trust usually has no effect on the income tax which the grantor will owe and is reported directly on the grantor’s income tax return and associated Social Security Number. The trust is not required to file an independent return. After the death of the grantor(s) the trust gets assigned its own tax identification number which is taxed at the same rate as a probate estate.
Can I Draft My Own Trust?
Yes, you can, although you should be cautious. Trusts are complicated and are subject to several different sets of laws and rules. If you are willing to learn all those laws and rules, and with the guidance of software or resources on the internet, a do-it-yourself trust can be a way to save money. However, creating your own trust is a significant undertaking where attention to detail is must, and a great many hours must be spent reading before anything should be drafted. For those with a gift for accurate language and plenty of time on their hands, it could work. But, it is much more probable that you would make mistakes that cause problems for your trust, which would end up costing more to fix in the long run. Whatever you decide, we highly recommend having an attorney look it over to make sure all is well.
If I Have a Revocable Living Trust, Should I Still Have a Will?
Yes. You need to have a backup will also known as a pour-over will in order to cover any assets you may forget to put in the trust. Your will is also where you can name a guardian for your children if they are underage and what your wishes are regarding your funeral and burial.
How Do I Protect My Digital Assets Such as Social Media Accounts?
Your digital assets and rights including any accounts for email, music, photos, social media, marketplace, or other, are automatically transferred to the trust with the “assignment of personal property”. The trust and durable general power of attorney authorize the trustee to manage digital rights and assets. Maintain a list of all of your digital assets safely printed out and stored where the trustee can find it. This list should include all of your accounts online with URLs, usernames, and passwords. Decide what you want to do with these accounts in the event you are incapacitated or after your death. Let your trustee know whether you want accounts maintained following your death or whether you want them permanently removed or archived.
Is a Revocable Living Trust Suitable for Pet Care?
As part of your revocable living trust, you can create a pet trust for your pets. You can designate people to care for your pets, set aside funds for the care of your pets, and so on.
If I Suffer a Disability, Illness, or Injury and Have No Trust or Will What Happens?
A conservatorship or guardianship proceeding would likely be necessary. The probate court can appoint someone serve as your guardian or conservator to take control of your assets and personal affairs. The proceedings may not reflect your wishes.
Isn’t a Revocable Living Trust for the Rich?
No. A revocable living trust can help anyone with an estate large enough and protect their family and friends from probate and court costs, federal and state estate taxes, and support their values and wishes. Furthermore a trust can help avoid disputes, court supervision, and protect you, your spouse, and your children should you be incapacitated. Reach out to us to find out if a trust is a good fit for you.
What Should I Consider Before I Begin?
You can get started by thinking about the following:
1.) Who will be the successor trustee in the event of death or incapacity?
2.) Who should be the guardian of your minor children?
3.) Who will make health care and financial decisions for you if you cannot make them yourself?
4.) Who are your beneficiaries and how will your estate will be distributed?
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