What is a Living Revocable Trust? Benefits & Steps Involved

A living revocable trust, also known as a living trust, is an agreement that allows people to manage their assets during their lifetime and ensure a smooth transfer of those assets after they pass away.

Unlike a will that takes effect upon death, a living revocable trust is effective immediately when established. It can be changed or canceled by the creator at any time. This flexibility makes it an appealing option for estate planning for those seeking to bypass probate and ensure their wishes are carried out with minimal legal hassles.

In this blog post, we will explore the ins and outs of living revocable trusts, highlighting their advantages and explaining why they could be useful in your estate planning approach. Whether you're contemplating establishing such a trust or curious about how they operate, this article aims to offer insights into this powerful estate planning tool.

Understanding Revocable Trusts

A revocable trust is a legal arrangement that allows you to place your assets into a trust while retaining the flexibility to alter or dissolve it at any time during your lifetime. This type of trust provides a way to manage your assets efficiently and can help avoid probate, the legal process of settling an estate. You retain control over the trust and its assets, meaning you can make changes as needed or even terminate the trust entirely. Upon your death or incapacitation, the trust’s assets are distributed according to your instructions without the need for court intervention, ensuring a smoother transition for your beneficiaries.

What Exactly Is a Living Revocable Trust?

A living revocable living trust is designed to hold title to an individual's assets. The trust is set up by a person known as the "grantor" ( called the "trustor" or "settlor"), who moves their assets into the trust and appoints a "trustee" to oversee those assets based on the conditions outlined in the trust document. Typically, the grantor initially acts as the trustee, maintaining authority over the trust assets throughout their lifetime.

A notable aspect of a living trust is its adaptability. The grantor can modify or cancel the trust at any point, hence why it's termed "revocable." This implies that as long as the grantor is alive and mentally sound, they can alter the trust's beneficiaries, trustees, or terms or even dissolve it altogether.

How Does a Living Revocable Trust Operate?

Upon establishing a living revocable trust, you transfer ownership of your assets to this entity. These assets can encompass real estate properties, bank accounts, investments, personal belongings, etc. Despite being owned by the trust itself, you—the grantor—retain control over them. You can utilize them just as you did before creating the trust.

When you pass away or cannot make decisions, the trust becomes permanent (meaning it cannot be altered). The person you chose as the trustee in the trust document takes charge. This successor trustee handles the trust's assets and distributes them to your chosen beneficiaries according to your instructions.

Advantages of a Living Revocable Trust

A living revocable trust offers many benefits that make it a popular option for estate planning:

1. Avoiding Probate

One of the advantages of this trust is that it allows your assets to skip the probate process. Probate involves validating a will and distributing assets to beneficiaries, which can be time-consuming and expensive. By bypassing probate, a trust ensures faster and more private distribution of your assets.

2. Flexibility and Authority

As the creator of a trust, you retain authority over its assets while alive. You can make changes, add or remove assets, and modify beneficiaries based on your circumstances or desires. This flexibility brings peace of mind, knowing you can adjust your estate plan accordingly.

3. Planning for Incapacity

A living revocable trust can also manage your assets if you can no longer do so effectively. Suppose you cannot handle your affairs due to illness or injury. In that case, the person appointed as the successor trustee can take over. The successor trustee will manage the trust assets on your behalf, ensuring that your financial matters continue without disruption.

4. Privacy

In contrast to a will, which becomes a public record during probate proceedings, a living revocable trust maintains confidentiality. The terms of the trust and details about your estate are not publicly disclosed, providing privacy for both you and your beneficiaries.

5. Ease of Management

Managing a living revocable trust is easy, and you can use your assets as usual. Since you retain control over the trust, you are not required to file separate tax returns for it while you are alive. The trust's income and expenses are included in your personal income tax filings.

How to Set Up a Living Revocable Trust?

Establishing a living trust involves the following steps:

1. Define Your Goals

Before establishing a trust, consider your estate planning objectives. Are you aiming to avoid probate, provide for children, or ensure the management of your assets in case of incapacity? Understanding your goals will help you tailor the trust to suit your needs.

2. Choose a Trustee

Select a trustee to manage the trust's assets. You can serve as the initial trustee, and it's essential to choose a reliable successor trustee who will take over if you become incapacitated or pass away.

3. Draft the Trust Document

Work with an estate planning attorney to draft the trust document. This legal document outlines the terms of the trust, including how the assets will be managed and distributed, and names the beneficiaries and successor trustees.

4. Transfer Assets to the Trust

Transfer ownership of your assets to the trust. This process, known as "funding" the trust, involves changing the title of your assets to reflect the trust as the owner. Ensuring all intended assets are included in the trust so that they can fully benefit from its advantages is essential.

5. Review and Update the Trust

Review your trust document regularly to ensure it still aligns with your goals, and make updates as necessary. Changes in your financial situation, family circumstances, or estate planning objectives may require adjustments to the trust.

Consider establishing a trust in the following situations.

• You Want to Avoid Probate: Trust is a solution to bypass the probate process and spare your loved ones the hassle, cost, and public scrutiny involved.

• You Have Minor Children: If you have minor children, a trust lets you outline how and when they will inherit your assets, ensuring their needs are controlled.

• You Own Property in Multiple States: Owning state property can be streamlined using a trust to avoid dealing with probate proceedings in each state.

• You Desire Privacy: For those who value privacy, a trust can distribute assets without revealing estate details.

• You Have a Significant Estate: Wealthy individuals can benefit from a trust's comprehensive management and tax advantages.

Conclusion

A living revocable trust is an estate planning tool that offers advantages such as probate avoidance, privacy maintenance, and incapacity provision. By familiarizing yourself with its features and benefits, you can confidently address your estate planning requirements and ensure that your assets are handled and distributed according to your preferences.

For guidance on setting up a living revocable trust, consider contacting Doane & Doane, West Palm Beach. Our skilled lawyers specializing in estate planning can assist you in crafting a trust tailored to your requirements and ensure peace of mind for you and your family.