As a type of estate planning tool, revocable living trusts (or RLT) have been utilized for quite a long time. In fact, they are the basis of most estate plans.
In general, this type of living trust is favored for many reasons: as revocable trusts, they can be changed over time; as tax incentives, they provide many benefits and avoid costly burdens; and, finally, they don’t have the limitations of irrevocable trusts.
This is the basic structure for how revocable trusts typically work:
- Trust is established appointing the trustee(s).
- Assets are placed within the purview of the trust.
- All of the assets in the trust are retained in ownership by the grantor during his or her lifetime.
- The trust can be altered or extinguished, unlike irrevocable trusts.
In addition, RLTs also provide much-needed privacy, while at the same steering clear of probate and potential family feuds (only with Steve Harvey to mediate).
Fundamentally, a revocable living trust makes sure that the appropriate money and other assets are received by the right beneficiary parties at the appropriate point in time.
If you are considering a revocable living trust, it’s important to know what assets you can legally put into the trust, and the ones for which you will need to make other arrangements.
Generally speaking, the following is a list of what you’ll want to include in any RLT:
- Real estate properties
- Bank checking accounts
- Savings accounts
- Investments (stocks, bonds, cryptocurrency, etc.)
- Businesses and business interests
- Any notes payable
One might wonder, “What is the point of a revocable trust?” Well, as outlined above, revocable living trusts are a popular estate-planning instrument for a number of reasons.
They offer several distinct benefits that enable them to provide legal and financial support. Individuals can use revocable trusts in turn to protect, shield, and plan for their assets.
The following is a non-exhaustive list of benefits of a revocable living trust.Avoid Probate
Probate is a legal process in which assets and properties are transferred upon death. A probate process entails the presentation of documents for a probate court and the resulting processes, the number of which is dependent upon the number of assets or properties in different US states.
Forming an RLT can shield your assets from the costly proceedings of probate court, as well as allow your property to get divided out to the appropriate beneficiaries more quickly.Flexibility
A revocable living trust allows individuals to alter (also called making “amendments”) to the trust documents during their lifetime, and their own discretion. This is not the same as it would be for irrevocable living trusts, which can almost never be amended.Privacy Protection
Additionally, a revocable living trust is a great option for wealthy individuals that want to keep personal records or other data about their property and assets private after their death.
Many people engage in an RLT to avoid the open-book probate process to which wills are often made subject. The probate court proceedings can indeed make an entity’s assets, and even the entire estate, quite public. This is because the documents presented to the court become a matter of public record, and, therefore, are available for anyone to access at any time.Estate Protection
In many cases, a standard last will and testament can cause infighting amongst family members upon an individual’s death. Further, wills can be challenged by any family member for alteration.
To avoid this, many people prefer to protect their estate and the potential for disagreement and dispute after their death by establishing a revocable living trust. By utilizing an RLT, estate planners can disinherit specific individuals that issue challenges to their wishes. In other words, any challenger is immediately disinherited from receiving assets out of the trust.Tax Shielding
Revocable living trusts may not always be ideal tax shelters on their own, they do offer the ability to create a credit shelter trust after someone’s death. Credit shelter trusts are incredibly effective estate planning vehicles that can help mitigate burdensome estate taxes for estates that will end up surpassing the exclusion amounts.Asset Segregation
This particular tool is very helpful for married couples that have significant and separate property or assets that were acquired before they got married. RLTs do the job of keeping those assets separate (or “segregated”) from the married couple’s communal assets and properties.Guardianship Control and Power of Attorney
A revocable living trust may also be utilized to enable the control of the spending habits of a guardian on behalf of children while they are minors.
Likewise, the RLT can specify and enable someone to act on, and make decisions for, an incapacitated individual’s behalf. If a person happens to become disabled or impaired, the revocable living trust has the ability to instantly appoint a specified trustee to manage the trust itself, as well as the individual’s financial affairs, without the need to receive durable power of attorney.Generational Asset Growth and Management
Finally, RLTs have the unique benefit of enabling the assets and wealth that someone has accumulated during their lifetime to continue growing across several generations, simply by utilizing a professional trustee to manage the assets and property.
Individuals can also set a limit on the type of withdrawals (income only, for example), or even specify special emergency provisions.
Who are revocable living trusts best for? Revocable living trusts are best suited for individuals with considerable wealth that want to set up specific parameters around their estate and shield it from difficulty after their death. It has the distinct advantage over irrevocable living trusts in that it is both alterable and extinguishable.
Is there a difference between a revocable trust and revocable living trust? No, these are terms that refer to the same legal process. A revocable trust and a revocable living trust are identical. They are simply different phrases for the same thing. In fact, the phrase “living trust” can be added to this list as well. It also has the same definition as the other two.
How do you create a revocable living trust? Is it difficult? As with any trust, the agreement itself will typically be drafted by an attorney and will detail precisely which assets are included in the trust, and how those assets will be overseen. With the right lawyer, this is not a “difficult” process; it does, however, require estate planning, which in turn requires attention to details that will likely outlive the individual in question. Finally, revocable living trusts require the money needed to hire an attorney and file the necessary paperwork.