Is a revocable living trust right for you?

3 MIN READ | #blog

A revocable living trust (RLT) is a legal document that places your assets into a trust during your lifetime, and distributes them to your heirs or designated beneficiaries after you die. The assets you put into the trust can include real estate, valuable possessions, bank accounts, and investments.

When you create a revocable living trust (RLT), you’re generally the initial trustee and beneficiary. You control the trust during your life. It is described as “revocable” because you can cancel, change, or modify it at any time.

Many people view an RLT as a substitute for a last will and testament (“will”). However, when you create an RLT, you should also execute a “pour-over will.” With a “pour-over will,” all assets that pass through the will upon your death are transferred into your trust, so that the trust document will control the disposition of all your assets upon your death. RLTs don’t reduce your estate tax exposure because all assets owned by the trust are includible in your gross estate.

How does an RLT benefit you?

Probate avoidance

Avoiding probate court can save money, time, and headaches for your estate and family. Probate is avoided for RLT-owned assets because it is the trust document that determines how trust assets are distributed, not a will.

An RLT is not the only way to avoid probate for many types of assets. Consult an estate attorney or financial professional for more information on alternatives.

Maintenance of privacy

When a will is filed with the probate court, it becomes public record and is available to anyone who wants to look at it. RLTs, however, are private documents and remain private upon your death. If most or all of your assets are held in an RLT, there will be little for strangers to discover within the court file.

Protection against incapacity

An RLT may have a co-trustee, or provide for a successor trustee who has authority to manage your assets without court approval if you become incapacitated. The trust is managed for your benefit, so you’d still get the benefits of the trust assets. This is a great feature for those who may own commercial real estate or a closely held business. Even with an RLT, you should have a durable financial power of attorney, which may be required for other purposes, such as dealing with life insurance policies, retirement accounts, and other non-trust owned assets. (Note that a durable financial power of attorney automatically ends at your death.)

Support for special needs children

An RLT can include necessary provisions to create a special needs trust. If you have children who receive government benefits, they could be disqualified from getting benefits if they’re left an inheritance. A special needs trust is used so that you can leave assets to your child with special needs while also maintaining the child’s ability to get state or federal benefits to which they are entitled. A will can also create a special needs trust, but it must be probated before it’s established and funded.

As you can see, an RLT serves many useful estate planning purposes. Consult with an attorney to discuss if an RLT makes sense as part of your estate plan. You should also make sure that any trusts you create are integrated into your overall estate plan.

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2022-144657 Exp. 10/24

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