What is a Revocable Living Trust?
A revocable living trust gets its name for two reasons. “Living” because they’re made during your lifetime and “revocable” because you can alter or modify the terms at any time. As life changes, you can remove beneficiaries or designate news ones, and adjust the rules of how your assets are managed.
A revocable living trust is where many people start with their estate planning because it’s amendable at all times. While avoiding probate if something were to happen to you, it also provides privacy and ensures that your assets are going to the right beneficiaries - at the right time.
As the trustmaker of the revocable living trust, you are also the trustee. This means that you are the person who controls the assets in the trust and handles the administration – such as tracking income and tax returns.
Compared to other legal documents, such as wills, revocable living trusts provide benefits such as increased privacy and more flexibility.
What are the benefits of putting your assets into a revocable living trust?
These are the top 5 benefits of putting your assets in a revocable living trust.
One of the biggest advantages of revocable living trusts is the avoidance of probate. Assets held in a trust avoid probate because the trust itself doesn’t diminish with the trustmaker.
Living trusts are never filed with a court, therefore they do not become public record. As mentioned above, living trusts also help avoid probate, which keeps your records out of public proceedings.
Many individuals find that flexibility to alter their living trust as they see fit is best suited for their situation.
Avoid Guardianship or Conservatorship
If you were to become disabled or incapacitated, your assets would be subject to the restrictive rules of guardianship or conservatorship. A revocable living trust allows you to name a successor trustee so that someone can manage your trust and assets for you if you can no longer do it yourself.
By naming a professional trustee to manage your property, the wealth that you’ve accumulated can continue to grow for multiple generations and you can put restrictions on the income or withdraws.
Assets that Should be Put in a Revocable Living Trust
Most individuals choose to create a revocable living trust to avoid probate fees. The more your assets are worth, the more it will cost to probate it. Therefore, it’s smart to put high-dollar, valuable property items in the trust. These items include (but are not limited to):
- Real estate property
- Personal stock or bonds
- Valuables such as antiques or family heirlooms
- Valuable collections
- Precious metals
- Business shares/stock
Remember, you can add (or sell) assets to a revocable living trust at any time. However, there are also some assets that should not (and can not) go into a living trust.
HSAs and MSAs – Health savings accounts and medical savings accounts are designed to pay for qualified medical expenses and are subject to taxation. They cannot be retitled in the name of your trust.
Life Insurance – While you can change your life insurance policy’s ownership to the trustee named in your trust, creditors have access to these funds. And revocable trusts do not protect assets from creditors if the trustmaker passes away with debt.
Vehicles – Retitling vehicles to your trust will depend upon the state in which you live. Some states charge a title-transfer fee and taxes.
Qualified Retirement Accounts – While you can retitle 401ks, IRAs, and other qualified retirement accounts to the name of the trust, this does bring about income taxes on the entire amount in the year of the transfer.
There are several other assets that should, and should not, be put into a revocable living trust. Reputable estate planning attorneys understand these matters in the states in which they are licensed to practice in. It’s best to reach out to an attorney to discuss your unique situation.