What Is A Revocable Living Trust and Why You Need to Know

There are some subjects that we just don’t like to talk about and can make us feel really uncomfortable. One of these subjects is our own death and how our assets and property will be distributed when that event ultimately occurs. Having said that, it is imperative that everyone think about their estate plan and what they need or want to do with their assets when they’re gone. You have the final say as long as you do something about it while you are alive and well. While many people choose a Last Will and Testament, another option is a Revocable Living Trust (RLT). So you may be wondering, what is a Revocable Living Trust?

If you're wondering what is a Revocable Living Trust and if you need one, this introduction will help you determine if it can benefit you and your family.

The RLT Option

Most of us, when we do think about what will happen to our families when we are gone, think about a Will. But an RLT is becoming increasingly more popular as an estate planning tool since changes have been made to make them friendlier to establish and use. An RLT lets you determine who receives your property and assets, and divides them while you are still alive and helps you avoid probate court.

That’s a big deal because probate can be complicated and delay things, as well as cost money and become part of what already is an upsetting time.

With an RLT, you can detail the transfer and ownership of your assets, but those assets can still be used to benefit you while you’re alive. You just need to spell out those details in the RLT documents before you pass away. That sets up what you want to happen and yet still allows you to use your assets if you want to do so.

The revocable aspect means that you, as the named Trustee, can change the document at any time you’d like without seeing a lawyer or going to court, which can save you time and money. The document gives you control while alive, and then will speed along all the inheritances to your specified heirs more quickly after death than a probated Will can. An extra reward is that it saves your estate money when death occurs, compared to the transfer of assets from a traditional Will.

What Does It Cost to Set Up an RLT?

Of course like everything in life, protecting and planning your finances and assets does have a monetary cost. The cost of creating the RLT is initially higher compared to a Will, particularly when it’s a complicated estate and lawyers are involved.

The actual cost can run upwards of $1,000 or even more, but it is also possible to do it yourself which can save you quite a bit of money.  For simple, uncomplicated estates, the cost can be as low as a how-to book or an online service that is between $30 and $300 in price (plus notary costs). Online companies also offer live consultations and availability to make free changes for annual low cost fees, which can be helpful but often isn’t necessary.

Why You Might Want an RLT

Besides avoiding probate, there are other reasons why you might want an RLT. It helps to understand that an RLT prevents the transfer of all of your assets being inherited at one time such as can happen with a Will after you die. Since you are named as Trustee and control your estate as long as you live, you can specify any dates and amounts for dispersion of assets on a schedule of your choice. It doesn’t mean that there are any changes in the tax responsibility for your heirs, but having that flexibility means assets can be transferred (within certain rules) during your lifetime and can benefit them now rather than later after you have passed away. That actually gives a lot of joy to you and your beneficiaries.

The best part is that you can change your RLT at any time by attaching a simple written amendment which does not require a lawyer to be involved. However, you will need to get that amendment document notarized.

RLT Exclusions

Some items, like your IRA accounts, cannot be included in your RLT and you will still need a simple Will in conjunction with the Trust (called a Pour Over Will) that will handle any assets that come into your estate after death. The Pour Over Will avoids any problems about where and how those assets will go. It can also be used for making any final wishes you have.

The Benefits of the RLT

Don’t underestimate the fact that Revocable Living Trusts are a great way to decide which of your family and friends receive your assets while you are fully in control of your decision making abilities. Sometimes, regrettably, those abilities can diminish as you age, and make your judgment challengeable when contested in a Will at a later time.

The RLT avoids probate unlike a Will, and that means that your declarations and decisions are not a public record and you retain your privacy. In addition, when probate is avoided there is no cost to anyone. Probate can take from months to years to settle and can be contested and costly. The RLT will save the heirs both time and money as there is no court involvement.

Finally, by naming a Successor Trustee or Co-Trustee, you can ensure that if you become incapacitated, your assets will continue to be managed and your bills will be paid by someone you trust. And unlike a Durable Power of Attorney (which might otherwise be used for this purpose), a third party cannot challenge the Trustee’s ability to act on your behalf.

Why You Might Not Want an RLT

If you are older (55-60+), have a fairly large estate, and are unmarried, an RLT may be a necessity. But, on the other side, it isn’t a tool for young marrieds to establish, especially if there are no children because in most states, your estate will automatically transfer to your spouse upon death without forming a Trust. A simple Will should cover that situation. The costs of creating the Trust are typically higher than a simple Will.

The one exception to this is if your health is in question when you pass, and then even at a younger age you may want to consider the RLT (even with its higher cost).

A Quick Summary

RLT Will
Simply Drawn Yes Maybe
Easily Revised Yes Maybe
Names an Executor/Trustee Yes (you or someone else) Yes
Names Beneficiaries Yes Yes
Names Guardians for Minor Children No Yes
Covers Assets for Minor Children Yes No
Avoids Costly Probate Yes No
Provides Privacy Yes No
Cannot Be Challenged Yes No
Avoids Conservatorship Yes No

And a few notes

First, an RLT and a Will do not reduce any estate taxes, but most likely you won’t have to pay those anyway. The current 2019 threshold on estate taxes applies to estates with values of over $11.4 million per individual (up from $11.18 million in 2018) and $22.8 million per married couple. That means almost no one pays federal estate or gift taxes except extremely wealthy people.

Secondly, if you have a pet, you cannot leave them any property or assets in an RLT, but you can leave them money and accommodations in the form of perpetual care.

Third, if you have personal, specific burial instructions, you will need to leave those in a Will or other document since your Trust applies to decisions you make about your property “in life”.

If you are concerned about protecting your assets in case you will need care in a nursing home, you may need a more complicated instrument such as an Irrevocable Living Trust. If you are considering this alternative, there are lots of resources on the internet, but you may want to seek out the advice of a qualified attorney.

Lastly, and perhaps most importantly, whether you use a Will or an RLT to distribute your assets after death, talk to your family while you’re still in good health and let them know what to expect. This will help to avoid any family fights or ill will.

Final Thoughts

A Will is the usual instrument that most people think of and use when preparing how to divide their assets upon their death. But, while you are still alive and can enjoy seeing some of your assets dispersed, the RLT is a really viable additional document or alternative that can avoid the time drag and higher fees of probate, and the challenges of family and friends in court after you are gone.

Have you thought about your loved ones and estate planning for them after you’re gone? Don’t be afraid to plan ahead while you are calm and not facing pressured circumstances. Now is always the best time to do that and you may find that a Revocable Living Trust is a great tool for you!

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