A revocable living trust (RLT), is a document that is created by an individual, called a grantor (or settlor), during the grantor’s lifetime, that instructs a trustee on how to manage the grantor’s assets during the grantor’s lifetime and how to manage or distribute the assets upon the grantor’s incapacity and death. Diverse assets such as life insurance proceeds or policies, real estate holdings (including the grantor’s personal residence), bank accounts, and investments can be managed with an RLT.
An RLT allows a grantor to name him or herself as the initial trustee and to name a successor trustee in the event that the grantor becomes incapacitated or dies. By being named trustee, the grantor retains full control and also retains the benefit of his or her assets.
In addition to serving as the trustee, the grantor has the ability to alter the trust as he or she sees fit (hence being called a revocable trust), to add or remove beneficiaries, and use the assets as he or she wishes. Because the assets in an RLT are still under the control of the grantor, he or she will pay taxes on any income within the trust accordingly.
BENEFIT 1: PROBATE AVOIDANCE
One major benefit of using an RLT as an estate planning strategy is that it avoids probate. Unlike a last will and testament, that has to go through probate in order to transfer property to beneficiaries, a RLT works to transfer property during the grantor’s life. This is accomplished by ensuring that all assets that otherwise would have been in your grantor’s name at death are transferred, or “funded,” into the trust. Then, when the grantor dies, there are no assets in the name of the grantor and no need for a probate. The terms of the trust will dictate what happens to the assets, not a court or state law. The grantor also has the right to add, remove, and control the assets that are placed into the RLT.
BENEFIT 2: PROTECTS INHERITANCES
Passing financial security on to the next generation is a popular goal for many people. However, inheritances can be vulnerable to many life events and changes a beneficiary might experience. A properly drafted RLT allows grantors to put restrictions in place to ensure their hard-earned money continues to benefit the next generation. Whether it is the use of a spendthrift provision or no-contest clause, or merely establishing an age that a beneficiary has to attain before receiving any distribution, the grantor is in control.
BENEFIT 3: PROVIDES PRIVACY
If a person has a traditional will, the terms in the will become public record as soon as the probate is opened. With a RLT, by contrast, assets are distributed privately and the transactions involved in administering the trust are not entered into the public record and cannot be searched, thus providing privacy to both the grantor and the beneficiaries.
The creation of a RLT is a key component of your estate plan. If you have any questions about creating a RLT, or estate planning in general, please contact your trusted estate planning attorney.
Berlin Patten Ebling, PLLC
Article Authored by Pamela Hernandez, Esq. firstname.lastname@example.org
This communication is not intended to establish an attorney client relationship, and to the extent anything contained herein could be construed as legal advice or guidance, you are strongly encouraged to consult with your own attorney before relying upon any information contained herein.
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