The Revocable Living Trust
A Living Trust is one of the most flexible estate planning tools in existence. It can be customized to help ensure that actions will be carried out according to one’s intentions while providing for several contingencies. One of the most common types is the ‘Revocable’ Living Trust, which is what we’ll review today.
A Revocable Living Trust is a legal document that an individual owner creates during their lifetime, whereby a ‘Successor Trustee’ is chosen to manage that person’s assets for the benefit of designated beneficiaries, contingent upon certain triggering events (i.e. the owner’s incapacity or death). Successor Trustees can be other individuals, although attorneys often recommend selecting professional institutions, such as a bank or a trusted company. Typically, these are structured so that the owner retains full control over the assets during their lifetime, as well as the right to ‘revoke’ (terminate) the Trust at any time.
Taken at face value, a Revocable Trust only seems to accomplish the same objectives as that of a ‘Last Will and Testament’. For example, they both allow for some influence on how assets are dispositioned at one’s demise. And it’s true, that a Will can help prevent transfers from occurring according to State Law – which takes little account of what the decedent would have wanted. However, certain questions will arise in the conversation, which reveals key differences in the Trust. For Example:
What would happen if someone were to become disabled or otherwise incapacitated, instead?
A Revocable Living Trust can provide certainty in terms of who would be managing that individual’s assets, how they would go about making decisions, and whether it would be on a temporary
or a permanent basis.
What if someone wants their assets to be distributed to beneficiaries over a certain timeframe?
A Revocable Living Trust can allow that person to be very explicit in addressing what will happen, often specifying the time period, as well.
What about the cost?
The initial cost in setting up a Living Trust is typically greater than the amount needed to establish a Will. That said, in most cases, the initial expense is more than offset by the future benefit to the Estate. More specifically: The benefit in using the Living Trust to bypass the costs and delay associated with the otherwise mandatory legal process, known as ‘Probate’.
Are there any other benefits?
A Living Trust allows for privacy by default, whereas Probate involves an estate settlement process that is transparent and fully accessible via public record.
Trustee Fees tend to be lower than Executor Fees (Probate), and they often cover professional asset management services.
While a Revocable Trust won’t directly reduce estate tax liability, it can certainly enhance tax efficiency when provisions are included to establish a Credit Shelter Trust, or when used in conjunction with other estate planning techniques, as part of an overall strategy.
In most cases, the Trust will also allow for additional FDIC Insurance Coverage per Beneficiary.
What are some downsides?
A Revocable Living Trust won’t always negate the need for a Will. For example, attorneys often recommend having a ‘Pour-Over Will’ as a backstop for certain assets that won’t be used to fund the Trust, or separate provisions to name Guardians, etc.
As was mentioned before, there are no inherent tax benefits to the Revocable Trust, itself.
Not unlike a Will, the Trust Document may need to be updated over time.
It’s also important to be careful about how the Trust will be funded. Some types of assets, such as qualified retirement accounts, should not be owned by the Trust.
In short, these downsides underscore the importance of working with an attorney.
The Revocable Trust can be like the cornerstone of an Estate Plan.
If you’ve been meaning to speak with an Estate Attorney about securing a strategy for the ultimate disposition of your assets, there may be no better place to start, than by asking whether a Revocable Living Trust is right for you. As always, feel free to reach out to us at the Heritage Wealth Management Group with any questions. We’ll be glad to help in any way we can.
Rhett Garner, CLU®, ChFC®, CFP®
Vice President – Financial Advisor
Heritage Wealth Management Group
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