This is a typical question clients ask an estate planning attorney. Many people believe that Revocable Living Trusts are just for the rich, yet they may provide considerable benefits to someone with even little wealth.
A revocable trust can suit many unique situations, below are just a few examples.
You should consider a Revocable Living Trust for mental disability planning regardless of your net worth, especially if any of your assets are titled in your single name.
Revocable Living Trusts, on the other hand, are not all created equal.
A well-made Revocable Trust should include procedures for evaluating your mental competence outside of a court hearing, as well as for instructions on how to care for yourself and your assets if you become mentally incompetent.
By keeping you and your assets out of a court-supervised guardianship, the provisions will save you and your family thousands of dollars.
A life insurance policy or a workplace retirement plan, such as an IRA or 401(k), are frequently the greatest assets that young parents have, and should be considered in estate planning.
It becomes a problem if the young parents subsequently split and one of them wishes to identify the minor children as principal beneficiaries, or if both parents die while the children are minors.
What happens to the life insurance policy or the retirement account?
This money will be placed under court-supervised guardianship for the minor’s benefit until he or she reaches the age of eighteen.
In these cases, the parents might consider establishing a Revocable Living Trust and designating the trust as the primary or contingent beneficiary of life insurance or a retirement account.
A revocable trust should be considered by everyone who is single and owns assets in their own name.
The major reasons are to keep you and your assets out of a court-supervised guardianship and to save your beneficiaries money and time by avoiding probate.
The minimum net worth required for a single person to contemplate establishing a Revocable Living Trust varies by state. If the value of your assets exceeds the state’s minimal threshold, a formal, time-consuming, and expensive probate court administration will be necessary.
If you and your spouse’s assets exceed the tax exemption of federal estates or your state’s estate tax exemption, you should consider creating Revocable Living Trusts to take advantage of both spouses’ estate tax exemptions. This is achieved by establishing AB Trusts or ABC Trusts and then distributing your assets across the two trusts in nearly equal amounts.
A revocable trust is an agreement that requires a certain set of steps.
Firstly, a grantor must create and sign a trust agreement. This agreement will appoint a party to be responsible to administer the trust.
The assets in the trust will then be transferred to the beneficiaries of the trust upon the grantor’s death.
While the grantor remains alive, they are still in control of the trust. They receive monetary benefits from the trust. The trust is also able to be changed, as revocable trusts are flexible.
A formal agreement or declaration establishes the trust and appoints a trustee to oversee and administer the grantor’s property. You can create a revocable trust as long as you’re a responsible adult. You can select any adult that’s competent as your trustee as the grantor; some people prefer to appoint a bank or trust business to this function. During your lifetime, you, the grantor, can also function as trustee.
You start by putting your assets into the trust, such as investments, bank accounts, and real estate, once it’s been set up. You no longer own those assets; they are now owned by the trust. Your trust assets do not have to go through probate court when you die since they are owned by the trust.
However, because this is a revocable trust, you maintain control of the assets while you’re still alive, even if they no longer belong to you. At any moment, you can alter or change the trust. The income generated by the trust’s assets is taxable to you, but the assets themselves do not pass to your beneficiaries until you pass away.
Using a funded revocable trust, may allow you to appoint, out-of-state persons who are unrelated. and out-of-state trust corporations to function as principal administrators of your estate after passing away. Many governments limit your options in this area if you don’t have trust. Consider that it’s usually easier to amend a revocable trust than it is to make changes to a will.
Probate avoidance is a main concern in estate planning. Probate is a long and arduous process, which can be very costly for clients, and its avoidance may be a major benefit. If you have properties in multiple states, each with their own will, then you may even benefit from avoiding probate court multiple times. Working with a qualified estate planning attorney is best to discover how to prevent the probate headache for your family.
Revocable trusts can also help to provide management of your assets if the established grantor does pass away or is incapable of fulfilling their duties.
Property must be reregistered in the name of the trust in order to be included in a revocable trust, as previously stated. This might be time-consuming and costly, especially if filing fees are involved.
Wills in many countries alter automatically when a person divorces, marries or has a child. Revocable trusts do not have the same level of freedom in most jurisdictions. As a result, as circumstances change, the grantor must ensure that the conditions of a revocable trust are updated as needed.
You must first prepare a Revocable Living Trust deed and designate a trustee before you can set up a Living Trust. The property you’ll put in the trust, as well as your beneficiaries, can then be listed. You must transfer your property into the trust after correctly finalizing your Living Trust deed. This can be accomplished by designating the trust’s trustee as the owner of your assets.
If you want to place real estate and estate taxes in your trust, for example, you’ll need to transfer ownership of your home to the trust through a Quitclaim Deed or Warranty Deed that names the trustee as the owner.
Most of us write multiple wills over the course of our lives; circumstances change, and our estate planning must adapt as well. A revocable trust, like a will, can be changed at any time. A revocable living trust’s flexibility is one of its most appealing features: you can modify its rules or terminate it at any moment.
If you and your spouse formed a joint trust, any of you can revoke it. If you wish to modify any trust provisions, such as the beneficiary or replacement trustee, you must both agree in writing. Transferring real estate out of the living trust will almost certainly require both spouses’ permission; purchasers and title insurance agencies often want both spouses’ signatures on transfer paperwork. The surviving spouse can modify the provisions of the trust contract that deal with his or her property when one spouse dies, but not the portions that govern what happens to the dead spouse’s trust property.
From a tax viewpoint, revocable trusts are the most straightforward of all trust structures. During the trust creator’s lifetime, any income earned by a revocable trust is taxed to the trust creator. This is due to the fact that the trust’s founder retains complete authority over the trust’s terms and assets.
The trust’s taxpayer identification number is usually the creator’s Social Security number throughout his or her lifetime. The trust’s income, deductions, and credits will all be recorded on the creator’s personal income tax return, and the trust will not have its own return. For tax reasons, revocable trusts are referred to as “grantor” trusts. They might be considered imperceptible to the IRS and state revenue authorities.
When a will and a trust go into effect, the distinction is significant. A will outlines your desires for after you pass away.
A living revocable trust takes effect right now. You have complete control over your trust while you are alive. And, if you become disabled or die, the successor trustee you name can simply step in and take care of your affairs precisely as you specified in the paperwork.
Revocable trusts may also avoid probate, which means they can save time, money, and aggravation. In addition, a living trust allows you to specify exactly who will handle your affairs if you become unable to care for yourself. This is an important consideration as elderly people often have medical conditions that may affect their decision-making ability.
John Diamantis is a trusted estate planning attorney with experience in all aspects of estate, trust, and tax planning. As an experienced lawyer who also has a unique background in finance, he has the ability to provide families with quality legal guidance that helps them incorporate their personal values into their estate plan.
Give Heritage Law a call today and let’s talk about your estate or revocable trust planning needs.