Revocable Living Trusts
Summary
A revocable living trust is an estate planning document that may help clients in achieving their estate planning objectives.
• What is a revocable living trust?
• Advantages of a revocable living trust
• Issues to consider
• How Edward Jones Trust Company can help
Important: State Laws Vary
It is critical to note that state law varies on how trusts are executed and interpreted. It is important that clients consult with their legal professional prior to executing any estate planning document.
What is a Revocable Living Trust?
The living trust (also referred to as a “revocable trust” or a “inter vivos trust”) is a trust that is created during the grantor’s (creator’s) lifetime and can be changed or revoked by the grantor at any time prior to their death or incapacity.
A grantor can serve as their own trustee, or the grantor can appoint an individual or corporate trustee to serve. Edward Jones Trust Company can serve as either current trustee or successor trustee for your client.
Advantages of a Revocable Living Trust
Consolidation of assets
A revocable trust serves as a vehicle where all of one’s assets, including life insurance, business interests, family heirlooms or land, can be managed, controlled and ultimately distributed to their heirs. A revocable trust can also be named as a beneficiary of one’s IRAs, profit sharing plans, and pension accounts.
Avoidance of probate
Any assets held in a revocable trust at one’s death will pass to their beneficiaries without being subject to probate administration. The use of a revocable trust should avoid many of the administrative expenses, fees of court-appointed representatives, publicity, delay, and restrictions on the management of one’s assets that would result if their estate were subject to probate administration.
Financial protection in case of incapacity
A revocable trust will function as a vehicle for the management of one’s assets in the event that one should become incapacitated and unable to handle their business affairs. In the event one becomes disabled or incapacitated and cannot manage their affairs, the successor trustee, as previously designated in the agreement, would automatically take over management of the assets in the revocable trust. Without the use of a trust, a court proceeding may be necessary to grant power to someone (a “conservator”) to continue their business affairs.
Certainty of distribution
Similar to a will, a revocable trust can carry out all of one’s estate planning goals with respect to the disposition of your property following your death. Any type of dispositive plan, including having the property held in trust for children and grandchildren, can be accomplished with a revocable trust.
Potential estate tax savings
A trust creates the mechanism for utilizing a deceased spouse’s applicable exclusion amount while still allowing the surviving spouse to benefit from the trust. For more information regarding this type of trust, please see Credit Shelter Trust.
Protects children
Property left in trust alleviates the need for a conservator to be appointed to manage assets left to a minor child. A trust may also help protect the property from an ex-spouse in a divorce situation.
Issues to Consider
Preparation of a trust document can incur a higher attorney’s fee than that of a simple wilL
Property must be put into the trust in order for the trust to function.
The advantages noted above are available only if one actually funds (i.e. transfer their assets into) the revocable trust during their lifetime. This transfer may involve some time and effort and some expense in reregistering securities and re-titling other assets. Although any such costs should be minimal, one should be aware of the possible inconvenience of initially transferring assets into the Trust.
A separate tax return may be required.
A separate tax return is required where someone other than the creator/grantor is the trustee. While
an individual serves as their own Trustee (or co-trustee) of their revocable trust it will not be
necessary to file separate income tax returns for the trust.
A will is still recommended.
Even with a trust, it is generally recommended to have a “pour-over” will. Even with the creation and funding of a revocable trust, it is still necessary to have a valid will. In order to continue to capitalize on the existing estate plan, the will would gather any assets in one’s sole name and “pour” those assets into their trust. This pour-over will is an added protection to provide for any assets that were forgotten or later received and never placed in the trust.
Asset titling is critical.
A living trust only controls those assets titled in the name of the trust. Some assets, such as IRAs,
401 (k)s and other pension plans, should not be transferred to the living trust. However, there are
beneficiary issues associated with these types of assets that are important and should be discussed
with a tax and legal professional.
Registration and/or beneficiary designation review of all assets, inclusive of the following, is recommended:
• Stocks, bonds, mutual funds, CDs
• Partnerships and corporations
• Checking and savings accounts
• 401(k), pension plan, IRA
• Home and other real estate
• Small businesses and other business interests
• Motor vehicles
The Benefits of Revocable Living Trusts
Revocable living trusts offer you a way to avoid probate (both during your lifetime and after your death) and distribute assets to your beneficiaries in the manner you choose. When you establish a revocable living trust, you continue to receive all of the income from the trust assets, and you have full access to the trust principal.
The Flexibility of Revocable Living Trusts
A revocable living trust can be altered at any point during your life. You can change beneficiaries or discontinue the trust at your discretion. The primary purpose of having a living trust is to avoid the probate process if you become disabled during your lifetime and cannot make decisions for yourself or upon your death. You name a successor trustee who will manage trust assets according to your directions.
Because you still maintain control of the assets within the trust, they remain part of your taxable estate. However, a revocable living trust can also include provisions to help reduce estate taxes after your death. Your directions determine what happens with your living trust after your death. If you wish, you can direct your successor trustee to simply distribute assets outright to your named beneficiaries, or you can create continuing trusts to manage assets and to make distributions according to standards that you set.