A revocable trust, also known as a ‘living trust’ or a ‘loving trust’, is a trust that you establish during your lifetime to manage your financial affairs.
A revocable trust is an effective estate planning tool that, if properly prepared and funded, will avoid the necessity of a guardianship if you become incapacitated and probate after your death.
The trust allows you to retain the right, while you are able, to add assets to or withdraw assets from the trust as well as retain all rights of ownership in and management of the property just as if it is still in your individual name until you die or are no longer physically or mentally able to do so. You also retain the ability to revise or even revoke completely the trust until your death.
At that point, the person you choose to act as your successor trustee will take over for you and manage your trust as you direct for your benefit and distribute the assets upon your death.
A trust becomes irrevocable upon your death and your successor trustee must handle the trust estate as you have set out in your document. It makes the transition for your survivors easier after your death.
A major reason some people prepare a trust is that the trust is not filed with the court and so protects your privacy; only your beneficiaries are entitled to know at your death how you distribute your trust (unless the trust is the subject of litigation.)
Another reason is that if you own real property in more than one state you can put those properties into the trust and avoid ancillary probate in those states at your death saving time and money.
A married couple may choose to prepare a joint revocable trust. In a joint trust, the couple’s assets are transferred into ownership of the trust and managed just as an individual trust. The trustee can be both spouses or managed by one of the spouses or another named trustee. While both spouses are living, the assets, income, and principal of the trust are payable to one or both of the spouses as set out in the trust. After the death of the first spouse, the trust remains in effect for the benefit of the surviving spouse. The assets of the trust are distributed to the couple’s named beneficiaries upon the death of the second spouse.
You will also need to prepare a pour-over will. This will directs the transfer of assets (other than personal property) to the trust and if you have minor children will name a guardian for them. This will is filed with the court and becomes public record. The will, however, does not contain any information about how you will distribute your property on your death.
You must be cautious in titling accounts and transferring assets to the trust. There can be costly tax ramifications if certain assets (such as IRAs) are placed in the trust. For these reasons, you should always contact your estate planning attorney to review before titling any assets in the trust name.
You should know that a living trust does not protect your assets from creditors and your individual and trust assets are subject to creditor claims at your death. Nor will titling assets in the trust reduce or eliminate state inheritance or estate taxes. Only an irrevocable trust can provide tax or asset protection. For these reasons, you should contact your estate planning attorney for advice and direction.
It will cost more to prepare a trust than a will but will most likely save much more than that in fees and costs, as well as time, later thereby easing the burden and cost to your loved ones.
Please call us to discuss how a revocable trust may be an effective part of your estate plan.