Revocable Living Trusts
It can be difficult to think about what happens to your assets when you pass away. However, it is important to take steps to protect those assets, and make sure they go to your intended beneficiary.
Most people have heard of wills; but there may be other ways to protect your assets that are better suited to your situation, including a revocable living trust.
What is a Revocable Living Trust?
A revocable living trust is a document that transfers ownership of property into a trust while the person is alive, then bequests it to the designated beneficiary or beneficiaries upon the person’s death. The grantor – also known as the settlor or trustor – places their assets into a trust.
These assets can include:
- Bank accounts
- Stocks or other investments
- Houses or other real estate
- Other personal property, such as jewelry and furniture
There are some assets that cannot be transferred into a trust, including life insurance policies and IRAs.
Once the trust arrangement is approved, the individual assets must be transferred to the trust’s ownership through the normal legal channels (such as a vehicle title transfer with the Department of Motor Vehicles). The trust names a trustee who controls the assets while the grantor is alive; in most cases, the grantor will make themselves the trustee, so that they retain control and usage of their assets while they are alive.
The grantor may also name an alternate trustee, in the event that they become incapacitated and are not able to manage their own property.
When the grantor passes away, the assets owned by the trust are passed to the beneficiary named in the trust arrangement. The assets can either pass to the beneficiary immediately, or the arrangement can specify transfer dates in the future, such as when the beneficiary reaches a certain age.
This gives the grantor more control over what happens to their money when they pass, particularly if their beneficiary is young, or might otherwise have trouble managing the assets.
Living Trusts Versus Wills
There are some important distinctions between a will and a revocable living trust that may make it a better option for some. Firstly, the arrangement is revocable – that is, it can be changed while the grantor is alive, if their needs to be changes.
While a will is subject to probate before it can take effect, which may last for months and incur significant court fees, a living trust simplifies the process by avoiding probate. It also helps protect the grantor’s privacy, as it does not go into the public record.
A revocable living trust does have some disadvantages. Since the grantor retains the rights to and benefits from their property, they are subject to the same taxes that they were before. There are annual fees associated with a trust, and it can be expensive to establish in the first place.
Additionally, because the trust can be changed or terminated during the grantor’s lifetime, it will not protect the grantor’s assets from creditors. When the grantor passes away, the estate will be subject to any applicable state and federal taxes.
Creating a Revocable Living Trust
The process of creating a revocable living trust can be relatively simple, depending on the size of the estate and the state laws governing the trust.
Essentially, the grantor needs to write up a trust instrument, which lists the assets and names the trustee and beneficiary. This document is signed by the grantor and notarized.
The laws vary from state to state, and the trust must conform to those laws in order to be valid. It is important to ensure that all the necessary steps are taken, or the assets may not be properly protected.
In addition, the grantor may wish to include other documents in their estate plan, such as a pour-over will, that can help protect any assets that are left out of the trust by mistake.
Chester County Wills and Estates Lawyers at Eckell Sparks Provide Comprehensive Estate Planning Services to Protect Your Interests
A Chester County wills and estates lawyer of Eckell, Sparks, Levy, Auerbach, Monte, Sloane, Matthews & Auslander, P.C. has the knowledge and experience to handle all types of estate planning matters. We are committed to protecting your assets and ensuring that your wishes are carried out, no matter the size of your estate. Call us today at 610-565-3701 or contact us online for a free consultation. With offices conveniently located in Media and West Chester, we provide comprehensive estate solutions for clients throughout Chester County, Delaware County, and Montgomery County.