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Revocable Living Trust

What is a Revocable Living Trust?

A Revocable Living Trust is similar to a will in that it will organize and dictate who your assets will be distributed according to your wishes at death. However, a Revocable Living Trust is a private disposition of your assets that does need to be submitted to the Register of Wills to become effective. It does not replace a will, it will act similar to a will and distribute the property pursuant to your wishes. A Pour-Over Will is used in conjunction with a Revocable Living Trust to pour over any assets which have not been titled into the trust upon your death.

How does my Revocable Living Trust function?

During your life, the Revocable Living Trust will hold your assets. You maintain complete control over your assets, and you can remove, alter, and add to the trust during your lifetime. It can also be terminated at your wish as long as you continue to be competent at that time.

Why should I use a Revocable Living Trust over a Will?

One of the major benefits of having a Revocable Living Trust is allowing you to avoid probate. Upon death, a Will becomes Public where all distribution information can be accessed by the public. Anyone (including companies) will be able to see the names of your beneficiaries and how much they inherited. A Revocable Living Trust provides private distribution where the information will be publicly accessible. Also, A Revocable Living Trust allows you to nominate a Trustee to seamlessly manage your assets if you become incapacitated.

How does a Revocable Living Trust benefit me if I become incapacitated?

The use of a Revocable Living Trust allows for your assets to be managed uninterrupted by incapacity. If you become incapacitated and your Revocable Living Trust is properly funded, a successor Trustee will be able to step in and manage all of your financial affairs for any items in the trust. Without planning, incapacity can result in the painful and expensive process of having a guardian appointed by the court.

Are there disadvantages to a Revocable Living Trusts?

One of the disadvantages of the Revocable Living Trust is that any expenses which you incur are done so immediately. The expenses are not deferred until your death, as is the case in probate. In addition, by properly funding the trust there may be incurred expense for retitling of assets depending on your situation. Finally, there may also be fees for a Trustee who is allowed a commission for managing the trust. Please note these fees are generally waived and not taken because normally the trustee is a family member who is going to be an ultimate beneficiary of the trust.

What are the tax consequences of having a Revocable Living Trusts?

During your lifetime and as long as you are the trustee and managing the trust, all the items which you place into the trust will be taxed using your social security number, therefore you will not see any change tax wise. All income will be reported on your normal income tax retune a it was before you set up the trust. Also, note that trust will not have an effect on estate or gift taxes as when 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 especially between a married couple taking advantage of the exemption allowed by law.

What do I do in order to revoke or change the Revocable Living Trust?

Generally, to amend or change your Revocable Living Trust or to revoke it, you must have the proper papers prepared to reflect any changes. If you decide that you want to change or revoke your trust, you should get in touch with your attorney in order to make the changes or to properly revoke it.

What happens to my Revocable Living Trust upon my death?

At your death, your trust becomes irrevocable and is no longer able to be amended or changed. All of the assets that were in your trust will still be considered in your estate for tax purposes and the Trustee or Successor Trustee, will then take over the duties and distribute the assets according to your particular wishes. Please note, the Trustee may also be responsible for some miscellaneous tasks, 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 the Trustee at the time to contact your attorney to ensure that all things are properly concluded at your death.

What do the terms Grantor, Trustee and Beneficiary mean and what are their responsibilities?

The Grantor in this case is you, it is the person who sets 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, during your life, a Revocable Living Trust is set up such that you take all three of these duties. 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 Revocable Living Trust 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 will, which is generally a Pour-Over Will which acts as a safety net to transfer anything that was not properly titled into the trust. Also, a Power of Attorney is still a very important document as it allows continued planning if you become incapacitated. It will also allow for the Power of Attorney to continue to fund the trust if it is only partially funding when you become incapacitated. Finally documents for health care decision such as the Health Care Proxy and/or the Living Will are still important documents, as they are needed in to handle your health care type decisions.

How important is the titling of property with respect to my plan?

Retitling property into the trust is a very important part of your estate plan. Without retitling the assets properly into the Trust, you will not be able to avoid probate if this is one of your goals. In addition, if property is not titled correctly your estate plan may not function correctly. For example, if you intend for a certain account to be distributed through the trust, but it was still owned in joint name when you pass away, that property will not be distributed pursuant to the trust. It will instead pass directly to the joint owner of the account. We feel that the retitling of property is so important that we devoted an entire section of your estate planning to the retitling process.

To learn more or get started on your estate plan, just schedule a time to visit us for a no obligation complimentary consultation.

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