When most people think about estate planning, they think of a last will and testament. And while a will can be a great estate planning tool, it’s far from the only tool available. Revocable living trusts can help your loved ones avoid the expensive, time-consuming public probate process.
They also offer you the best of both worlds — you can continue to use your assets during your lifetime, but the trust ensures they go to your chosen beneficiaries after your death.
The revocable living trusts lawyers at Hunter Sargent, PLLC can help you decide whether this is the right estate planning tool for you, but here is some general information about these trusts and how they work.
What Is a Revocable Living Trust?
A revocable living trust is a trust agreement that allows you to specify who receives your assets when you die or if you become incapacitated. There are three roles involved in the establishment of this kind of trust.
Trustor (Also Called Grantor or Settlor)
The trustor is the person who establishes the trust and transfers assets into it — in this case, you.
Trustee
The trustee is the person responsible for trust assets. When a revocable living trust is used for estate planning purposes, the trustor is usually also the trustee. When you name yourself as the trustee, that means you continue to have full control of your assets.
However, you can name one or more successor trustees. These are people who become responsible for making decisions about trust assets if you become incapacitated (like if you fall into a coma or develop Alzheimer’s).
It’s important to note that this is not the same as financial power of attorney. When you give someone financial power of attorney, that person is authorized to oversee your financial affairs in the event of your death or incapacity. When a successor trustee takes over, they only have authority over the assets you have transferred to the trust.
Beneficiaries
Beneficiaries are people who are given money or property in the trust. Most trustors name themselves as beneficiaries and then name spouses, children, or other family members as residuary beneficiaries, so they are given the money and property in a trust after the trustor dies.
For example, if you include your bank account in a revocable living trust and name yourself as a trustee, you are free to use your money as you wish. If you name your adult child as successor trustee and beneficiary, that child takes over control and ownership of those assets after your death.
The Benefits of a Revocable Living Trust
There are many types of trusts to choose from when you’re creating your estate plan. Revocable living trusts have several benefits for you and your beneficiaries.
Flexibility
As the name suggests, a revocable living trust can be changed or even dissolved entirely during your lifetime.
Protection From Probate
Probate is a process where the court validates your will and distributes your assets after your death. Because it is a matter of public record and is very expensive and time-consuming, probate is a process you want to avoid if at all possible. A revocable living trust can protect your grieving loved ones from the stress of probate court.
Asset Protection
Because you can name a successor trustee, a revocable living trust ensures your assets will be distributed as you wish, even if you suffer incapacity or die.
The Pros and Cons of a Revocable Trust
Like all estate planning documents, revocable living trusts have their advantages and disadvantages. You should always weigh the pros and cons of any estate planning strategy before making a decision. These are some of the benefits of revocable living trusts:
- They protect the privacy of your loved ones
- They help your loved ones avoid the ordeal of probate court
- They protect your money and property if you can no longer make financial decisions on your own behalf
- They are flexible and can be modified if and when you wish
However, these trusts also have downsides:
- They are expensive to create
- They do not provide any kind of tax advantage to you or your beneficiaries
- They don’t protect your assets from creditors seeking repayment
Choosing what kind of trust to create is a critically important decision. A revocable living trusts lawyer can review your situation and help you decide whether a revocable living trust is right for you and your family.
How to Create a Revocable Living Trust
An estate planning attorney can guide you through the process of creating a revocable living trust. Here’s a summary of how to prepare for and create a revocable living trust:
- Gather the names and information of your successor trustees
- Gather the names and information of all beneficiaries
- List all the assets you want to include in the trust
- Decide on trust terms, including how and when you want the beneficiaries to receive the assets
- Complete a living trust form
- Sign and notarize the trust with everyone you have named as a trustee or successor trustee
- Transfer assets to the trust
You also should make sure you periodically review the trust and update it as needed.
Frequently Asked Questions
Have questions about revocable living trusts? These are some of the most common questions our clients ask us.
What Is a Revocable Living Trust?
This is a legal document that allows you to maintain control of your assets during your lifetime and determine who will receive them after your death. While it doesn’t offer tax advantages, a revocable living trust can protect your loved ones from probate court.
Why Should I Make a Living Trust?
A revocable living trust helps you ensure your assets are distributed the way you intended after you die. However, one of the primary reasons many people choose revocable living trusts is the fact that they provide a way to avoid the probate process entirely.
How Much Does a Living Trust Cost?
The cost of establishing a living trust can vary considerably. Generally, you can expect to pay about $1,000 to $5,000 to establish one, but if you have a particularly large estate or a uniquely complex collection of assets, the cost may be even greater.
When you set up a consultation with a revocable living trusts lawyer, you should be able to get an estimate of how much it will cost to establish your trust.
Can a Living Trust Reduce Estate Taxes?
No. If you want to protect beneficiaries from estate tax and income tax, you should create an irrevocable trust. Irrevocable trusts aren’t as flexible as revocable trusts, but they offer significant tax benefits.
What Are the Benefits of a Revocable Living Trust?
Revocable living trusts have several benefits, but many people choose them because they protect family members who are already grieving from having to go through the probate process. They also give you control of how your assets are distributed after your death, but they allow you to modify the terms of that distribution at any point.
What Are the Drawbacks of a Revocable Living Trust?
The main drawback of a revocable living trust is that, unlike an irrevocable living trust, it does not provide any sort of tax advantage for you or your heirs. It also will not protect you against creditors.
How Does a Revocable Living Trust Work?
A revocable living trust allows you to control and use your assets during your lifetime while specifying who receives them after you die.
Can I Change the Trust After I Set It Up?
Yes, you can. The flexibility to change or dissolve a revocable living trust at any point is one of its major advantages.
What Can a Revocable Living Trust Do?
A revocable living trust can ensure a trusted person will make decisions about your assets if you are no longer able to. It also ensures your assets will be distributed to your beneficiaries how and when you specify.
For example, if you want your minor children to receive an inheritance, you could stipulate that they receive a certain percentage of your assets once they turn 18.
Do I Need a Lawyer for a Living Trust?
Creating a revocable living trust can be a very complex process, and if you make an error when establishing one, you can create serious problems for your loved ones after your death.
The revocable living trusts lawyer at Hunter Sargent, PLLC can help you make sure your trust document is legally enforceable. Get in touch with us today to schedule a meeting!