Benefits of Incorporating a Revocable Living Trust into your Estate Plan

A revocable trust is one that is created during the life of the grantor, and its primary uses are to manage property during the grantor’s life and reduce the cost and time associated with probate upon the grantor’s death while permitting the grantor to retain an amount of control over the assets it holds. Along with the ability to retain control over the assets in a revocable trust, a grantor retains the power to amend or even revoke the trust entirely during his life.

How it works

A revocable trust has three main players: 1) the settlor or grantor (who creates the trust); 2) the trustee (who administers and operates the trust); and 3) the beneficiary or beneficiaries (who receive the benefit of the trust and any distributions the trust makes). The revocable trust is established by a trust agreement, which is a writing that sets forth the above relationships and lays out how the property that the trust holds will be managed and distributed. The trust agreement, which is typically drafted by an attorney, is then formally executed in a manner that is specifically dictated by state law.

Once the trust agreement is validly created and executed property must actually be transferred to the trust. This is done by specifically titling assets- such as a residence, stocks, bond, or insurance plans- in the name of the trust. For example, with real estate, this is done by executing and recording a deed evidencing transfer of the real estate to the trust.

Assets that are titled in the name of the trust are managed by the trustee in accordance with the terms of the trust. Typically, when the grantor is alive and well he may manage the assets in the trust as the trustee of the trust for his own benefit as the beneficiary. The trust may set forth a replacement trustee who is to take over trustee duties in the event of the incapacity of the grantor. The trust may also set forth how the property is to be distributed upon the death of the grantor.

The type of arrangement that a revocable living trust provides offers some benefits over simple will planning.

Property management

Perhaps the most beneficial aspect of a revocable living trust is that it provides for the continual management of the property it holds. Initially most revocable living trusts are established so that the grantor is also the trustee. This enables the management of the property that the grantor has legally transferred to the trust to remain a responsibility of the grantor. For example, if the grantor transfers a personal residence to the trust and names himself the trustee, then he may still pay the mortgage, taxes, etc. Even though the trust legally owns the residence, the grantor, as trustee as well as primary beneficiary, may continue to manage the property exactly as he had prior to it being deeded to the trust. The trust may also contain provisions dictating who should manage the property in the event the grantor becomes ill, disabled or otherwise unable to manage the property on his behalf.

Additionally, a common concern of parents with minor children, or even children that are young adults but may still be somewhat dependent on the parentals, is that the children may receive a substantial inheritance before they may be able to maturly understand their responsibilities. We can probably all remember being 18 years old, eventhough we may sometimes want to forget. Imagine yourself at 18 and suddently coming into a substantial sum of money. As much as we'd like to convince ourselves otherwise, we're probably not going to maske the most responsible choices for those funds or consider our long term prospects.

Your children are probably no different. With a revocable trust, you are able to put constraints around when your children may request or receive distributions of their inheritance. Commonly, trusts are written in a way that prohibit a child beneficiary reaching the funds until certain ages. For example, he or she may be restricted from accessing funds until age 25, but perhaps then only a portion. Additional distributions could then be made at 28 and 30 years of age when the child is likely to have more financial wisdom and a different perspective for his or her future.

Without a trust, there's no telling what that child will do with the funds.

Avoid probate upon death

Probate is the process of proving to a court that a will is valid and disposing of the items it lists in the manner in which its creator dictates, paying any due taxes, satisfying debts and generally wrapping up the affairs of a deceased person. The process can become lengthy and expensive so a goal of many estate plans is to avoid the process as much as possible. A revocable living trust that is properly funded and legally holds title to assets will avoid probate proceedings and the assets it holds will be transferred to the beneficiaries named in the trust agreement without court involvement. Thus, revocable trusts have the potential to deeply cut the time and cost sometimes associated with the probate process.

Privacy

Wills must be filed with the court upon an individual’s death while a trust does not. Therefore, a trust’s dispositive scheme, beneficiaries, etc. can remain private while a will’s provisions become public record.

Planning for mental disability or incapacity

The trust may also contain provisions dictating who should manage the property in the event the grantor becomes ill, disabled or otherwise unable to manage the property on his or her own behalf. In such a case the trust agreement sets out that a successor trustee can take over those duties on the grantor’s behalf. The alternative if the asset is not owned by a trust is that a guardian or conservator would need to be appointed to accomplish the same goals. This involves additional expense and court involvement which is avoided if a revocable living trust is in place.

Flexibility to amend or revoke the trust entirely

A revocable living trust is amendable or completely revocable during the life of the grantor So long as the grantor is mentally competent he or she can change the terms or the trust, how it should be administered or even who the beneficiaries should be after he dies. This feature of revocable living trusts makes it an extremely flexible estate planning tool.

Michael F. Brennan is an attorney at the Virtual Attorney™ a virtual law office helping clients in Illinois, Wisconsin, and Minnesota with estate planning and small business legal needs. He can be reached at michael.brennan@mfblegal.com with questions or comments, or check out his website at www.thevirtualattorney.com .

The information contained herein is intended for informational purposes only and is not legal advice, nor is it intended to create an attorney-client relationship. For specific legal advice regarding a specific legal issue please contact me or another attorney for assistance.