Revocable Living Trusts

Revocable Living Trusts

Revocable living trusts are powerful estate planning documents that can help avoid costly court battles and provide instructions on how certain assets should be managed. Revocable living trusts are created to meet your specific needs, which are discussed during consultation and recommendations by your attorney.

Understanding Common Revocable Living Trust Terms

Revocable living trusts are often complex documents that may contain terms many people do not use in everyday language. Here is a brief list of terms to be aware of when considering forming a revocable living trust:

• Trust—a written document that determines how the grantor’s assets will be handled
• Trustee—the person who manages the trust, which is often the grantor
• Successor trustee—a trustee who takes over when the first trustee can no longer serve in this capacity
• Grantor—the person who makes the trust and maintains ownership of the property while he or she is alive
• Beneficiary—the person who benefits from the assets in trust
• Trust property—any assets that are transferred to the trust, which might include real property, personal property, vehicles, financial accounts, and more
• Revocable—the grantor can alter or void the trust at any time as desired, but when the grantor of a revocable living trust dies, the trust becomes irrevocable
• Irrevocable—the grantor is not allowed to modify or terminate the trust without the approval of a third party named in the trust or court approval
• Living—“living” means that the trust is created during the grantor’s lifetime and becomes effective upon creation; in contrast to “testamentary,” which a trust that goes into effect upon the grantor’s death
• Fiduciary—a person who owes a duty to another person and must put that duty ahead of their own self-interest

What Is a Revocable Living Trust?

A revocable living trust is created during a grantor’s lifetime. It provides instructions for how the trust property should be managed, which may include separate instructions for the grantor’s lifetime, a time of disability, and the time of their death. These instructions can generally be changed at any time, allowing for great flexibility for the grantor to sell assets, change beneficiaries, and make other adjustments as their life changes.

Assets are transferred from the grantor to the trust. The trustee oversees them. When the grantor dies, the trust becomes irrevocable because the trust-maker has died and is no longer able to make changes. Therefore, the trustee must carefully follow the instructions regarding how the trust property should be transferred to the designated beneficiaries.

How Is a Revocable Living Trust Different Than a Will?

Many people hear the terms “revocable living trust” and “will” used together. While both are important estate-planning tools that transfer a person’s property to his or her beneficiaries, there are some key differences, including the following:

• Wills are only effective at the time of death while trusts can go into effect immediately
• Wills must go through probate and are made public while trusts are privately administered and bypass probate
• Trusts can provide instructions on how property is to be managed during the grantor’s lifetime while wills cannot
• Wills allow the naming of a guardian for minor children while trusts do not

Benefits of Revocable Living Trusts

Some of the most important benefits of revocable living trusts include their:

• Timeliness
• Detailed instructions
• Ability to avoid probate
• Privacy
• Flexibility

Timeliness

Revocable living trusts allow a healthy grantor to create an immediate plan for his or her wealth. The trust can also create a set of instructions in case the grantor becomes disabled. This flexibility allows the grantor to potentially avoid the expense and hassle of having a guardian appointed to manage the grantor’s property. Additionally, the grantor can create a plan for after his or her death.

Revocable living trusts allow a healthy grantor to create an immediate plan for his or her wealth. The trust can also create a set of instructions in case the grantor becomes disabled. This flexibility allows the grantor to potentially avoid the expense and hassle of having a guardian appointed to manage the grantor’s property. Additionally, the grantor can create a plan for after his or her death.

Detailed Instructions

Generally, Wills simply state to whom a person’s assets will go after his or her death. There are usually no conditions for how the property will be used. With a trust, the grantor can leave detailed instructions about how trust property is to be used. For example, the grantor can provide provisions about how money for any minor children will be used. A grantor can also allow beneficiaries to live on a property without ever transferring the deed out of the family.

Ability to Avoid Probate

One of the most important benefits of revocable living trusts is that they avoid probate. Probate is a judicial process that involves completing an inventory of the estate, admitting the will, paying off the debts the deceased has at the time of death, and finally transferring assets to beneficiaries. This process is often slow and expensive. Additionally, it can take years for beneficiaries to receive any property that was left for them. Alternatively, trusts avoid the probate process and judicial oversight, so beneficiaries often receive their property more quickly.

Privacy

Wills are entered into public record, so anyone can read the stipulations included in a Will, including who the beneficiaries are and what each beneficiary stands to inherit. This may not be a pressing concern for most individuals, but if an heir is being disinherited or the estate distribution is very personalized, a revocable trust can provide some privacy.  Trusts are administered privately by the Trustee, so they avoid the prying eyes of the public.

Flexibility

The grantor can freely change, modify, or even terminate a revocable living trust as he or she sees fit. This gives greater flexibility in case circumstances change or if the grantor has a change of heart regarding how his or her property will be handled.

Disadvantages of Revocable Living Trusts

Some drawbacks to using revocable living trusts include their:

• Expense
• Lack of tax benefits
• Limited credit protection

Expense

Initially, wills and non-probate transfers may be less expensive than revocable living trusts. However, paying more to set up a trust now may provide greater benefits by allowing the grantor’s estate to avoid probate later.

Lack of Tax Benefit

Because these trusts can be revoked and the grantor maintains ownership interest over the property in trust, there is no tax benefit to using a revocable living trust according to the American Bar Association. 

Limited Credit Protection

For the same reasons as the lack of tax benefit, revocable living trusts may not provide much protection from creditors.

How to Create a Revocable Living Trust

The simplest way to create a revocable living trust is to work with a lawyer who is experienced in this area of the law. The Jennifer V. Abelaj Law Firm can help create a customized trust that meets your specific needs.

Consider the following four steps when preparing to create a revocable living trust:

1. Create an inventory of assets to include in the trust
2. Think about who should inherit the assets
3. Consider what should happen if you were to become incapacitated
4. Transfer the property to the trust once it has been created

Contact an Estate Planning Lawyer

When you are ready to create your revocable living trust, consider calling 212-328-9568 to schedule a consultation with the Jennifer V. Abelaj Law Firm, which is experienced in helping individuals and families create revocable living trusts that meet their particular needs.