A Revocable Living Trust (RLT) is a trust which you create during your lifetime. It is also called an Inter vivos Trust which means ‘during your life’ or Living Trust. The fact that the trust is revocable means that it may be changed or terminated at your wish as long as you continue to be competent at that time.
Why should I use a Revocable Living Trust versus a Will?
One of the major benefits of having a Revocable Living Trust is allowing you to avoid probate. It will also seamlessly allow a Successor Trustee to manage your assets if you become incapacitated. Please note however that the Revocable Living Trust does not replace your Will, although it will act similar to a Will and distribute the property pursuant to your wishes. Any good estate plan including a RLT will include the use of a Pour-Over Will which will pour any assets which have not been titled into the trust into the trust upon your death.
How does my Revocable Living Trust function?
During your lifetime your RLT will pay all income generated to you. In addition, it allows you to use any of the assets within the trust that are needed or requested by you. Upon your death, the Revocable Living Trust will distribute the assets pursuant to your distribution plan in a manner similar to your Will. As previously mentioned, there are several advantages of utilizing a Revocable Living Trust over a Will.
What exactly are the benefits of a Revocable Living Trust?
The use of a RLT allows for property to be managed continuously and without interruption during incapacity. Through proper planning and funding, a RLT allows your named Successor Trustee to step in and manage all of your financial affairs should you become incapacitated. By doing this planning you can avoid the stressful, expensive and time-consuming process of having a Guardian appointed if you were to become incapacitated. Also, it is generally agreed that a Successor Trustee will be accepted more readily than an Agent under a Durable Power of Attorney. Another major benefit of the RLT is that it avoids the public Probate process which requires the intervention of the Surrogate’s Court. Please note that by implementing a Revocable Living Trust you may not avoid all costs, as you will probably want to have an experienced attorney assist your beneficiaries as they distribute the property held by the trust and then terminate the trust if necessary. However the use of the trust will allow you to avoid much of the time delays and aggravations which are often associated with the Probate process. Further, if you have property in other states than New York, having those properties transferred into your RLT will allow you to avoid probate in those states as well. Finally some people like that a Revocable Living Trust provides privacy versus the Probate process.
Are there disadvantages to a Revocable Living Trust?
One of the disadvantages of the Revocable Living Trust is that it is generally more expensive to draft and implement than a Will and therefore, the expenses are not deferred until your death, as is the case in Probate. In addition, to properly fund the trust there may be expenses incurred in re-titling your real estate. Finally, there may also be commissions payable to a Trustee similar to what an Executor would be able to receive under a Will. Please note however that these fees are generally waived and not taken as the trustee is a family member who is going to be an ultimate beneficiary of the trust. Lastly, as the RLT is revocable and you remain in control, the RLT does not provide any asset protection from creditors, nursing homes or the Medicaid Program.
What are the tax consequences of having a Revocable Living Trust?
During your lifetime and as long as you are the trustee and managing the trust all of the items which you place into the trust will be taxed using your social security number, therefore you will not see any change at all tax wise. All income will be reported on your normal income tax return as it was before you set up the RLT. Also note, the trust will not have an effect on estate or gift taxes as when you pass away any assets which are in the trust will be considered in your taxable estate for estate tax purposes. However proper planning with your Revocable Living Trust will allow you to minimize your estate taxes if you are married and take advantage of the exemptions allowed by law.
Can I change or revoke the Revocable Living Trust?
Yes, as long as you are alive. Generally, any amendment or revocation will require additional documents to be prepared by us and executed by you.
What happens to my Revocable Living Trust upon my death?
Upon your death your trust will become irrevocable and is therefore no longer able to be amended or changed. All of the assets in your trust will still be considered to be a part of your gross taxable estate and the Trustee (or Successor Trustee if you were still the Trustee at the time of your death) will then take over the duties and obligations of the RLT and distribute the assets according to your particular estate plan. Please note the Trustee may also be responsible for some miscellaneous such as insuring that a final tax return is prepared and upon distribution of the trust that a final accounting has been done. It is a good idea for your Successor Trustee to contact us to ensure that all things are properly concluded at your death.
What does “Grantor”, “Trustee” and “Beneficiary” mean?
The Grantor in this case of a RLT is you, the person who establishes up the trust. It is generally also the person who funds the trust. The Trustee is the person who is responsible for administering the trust, investing the assets and handling any of the administrative duties which need to be performed. Finally, the Beneficiary is the person who benefits from the trust. Normally, a Revocable Living Trust is set up such that you take all three of these roles. You are the person who sets up the trust, you are the trustee who administers the trust during your lifetime and you are the one who is paid the income and benefits as a beneficiary of the trust during your lifetime.
If I have a RLT do I still need other estate planning documents?
As mentioned before, the Revocable Living Trust is only a part of your estate plan. You will still need a Pour-Over Will as discussed above, an Enhanced Durable Power of Attorney, Health Care Proxy, HIPAA Personal Health Information Release and a Living Will.
How important is the titling of property with respect to my plan?
Re-titling property into the trust is a very important part of your estate plan. Without properly re-titling of your assets into your RLT you will not be able to avoid probate for those assets. In addition, if property is not titled correctly your estate plan may not function as was intended. For example, if your intention was for a certain account to be distributed through the RLT and it was still owned in joint names when you passed away, then that property will not be distributed pursuant to the trust and will instead pass directly to the joint owner of the account.