Revocable living trusts can add flexibility to your estate planning in a number of ways. By finding a legal professional to assess your situation and lead you through the process, you can find many different paths to deciding on the best solution for your family. It’s a good way to avoid the frustration and expense of the probate process. A revocable living trust might just be the ideal decision for you.
First, it’s important to understand what a revocable living trust, how it works, and who is involved.
What Are Living Revocable Trusts?
A revocable living trust, also known as a revocable trust, is a legal construct specifically made to hold ownership of assets. Assets can include anything from real estate to the contents of bank accounts to personal items.
The person who makes the trust and funds it is referred to as the trust-maker, or the grantor. The trust is administered by a trustee, which is typically also the trustmaker, but can also be a family member or third party. The trustee manages all the content of the trust.
Trusts are active during the grantor’s lifetime. They also direct what might happen during his or her potential incapacitation. The person creating the trust, assuming he or she is also acting as the trustee, typically behaves as if he or she still owns the assets. While a social security number is attached to the trust, it is the same as the trustmaker’s even if the administer is a trustee. Some trustees may also be the grantor’s children, in which case they usually make decisions or investments under the direction of the grantor.
When the trust is created, it usually contains specific information about who should administer the trust’s assets in case the grantor becomes severely ill or mentally incapacitated. These provisions usually involve the naming of a successor trustee. This person then manages the trust if the grantor becomes incapacitated according to the definition of the trust.
Are They Flexible?
Living revocable trusts are flexible because they are changeable. This makes them most suitable for people whose family situations are constantly changing or who would like to explore other estate planning options. Trustees are switchable. Beneficiaries (those who receive the assets of the trust) can be changed or eliminated; the way assets are distributed to them is flexible. Living revocable trusts can also be voided entirely.
Living revocable trusts are changed by enacting a revocable living trust amendment. Once the revocable living trust amendment is enacted, it replaces all previous provisions of the trust. In the event of several changes over a period of time, or if radical changes all at once are desired, it might be best to consider an Amendment and Restatement of the entire trust so as to clarify the document for successor trustees. You may even wish to revoke the current trust and create an entirely new one. But no matter what kinds of changes are made to an original trust, the name, date, and social security number will remain the same.
The most important aspect of creating, funding, or amending a revocable living trust is remembering to adhere to local and state laws. These will vary, and you and your beneficiaries want to ensure that each part of the trust is valid and current.
What You’ll Need to Create a Revocable Living Trust
It’s not true that only people with vast assets should be concerned with estate planning or creating such entities as revocable living trusts. Anyone with tangle assets or dependents should consider this form of money management. Especially in the case of disabled children, aging parents, blended families, or assets under potential dispute after the death of the grantor, revocable living trusts can serve as a flexible way to ensure your loved ones avoid probate and that your assets are distributed as you’d like.
In order to create a revocable living trust, some states require government-issued ID to begin the process. Others only ask for the legal names of the grantor and the city and state in which the trust documents are signed, along with the date the trust is created.
Beneficiaries should be listed as well. These are up to the grantors or co-grantors, and assets may distributed to anyone they’d like. Beneficiaries can include children, friends, family members, or charitable organizations.
Grantors should come to trust establishment with the name of their successor trustee. This person should be a responsible, competent legal adult who can be trusted to properly distribute the contents of the trust when the time comes. Although the successor trustee is usually a grantor’s children, this is not a requirement. Friends, relatives, or business associates can also act as successor trustees.
Assets must also be listed within the trust documents. This includes specifics about each item, such as the addresses of all properties rather than just “our vacation lakehouse.” Disbursement of property and in which amounts should be disclosed. While these decisions are changeable, they must be specified.
What Happens Once the Trust Is Created?
It is possible for a married couple to be co-grantors, or co-trustees, of such a legal arrangement. In this scenario, both people are considered equal owners of the assets of the trust. The co-owners may make changes, but they must do so with the permission of the other. For this reason, any divorce proceedings should involve discussion of the provisions, funding, and amendments of the trust. Some divorcing couples agree to dissolve the revocable living trust and split it assets, then re-create individual trusts in their own names or with new spouses.
Upon the death of the grantor, the trust becomes irrevocable, or unchangeable. In case the grantor has incurred debts, bills, and taxes, the successor trustee pays them out of the assets of the trust. These expenses usually include final expenses, unless they have been prepaid. It’s also important to realize that since the IRS views the contents of the trust as retrievable, they are subject to estate taxes.