A revocable living trust is a simple legal entity that many people use for asset and estate planning and management. Also commonly called a “living trust” or “inter vivos trust,” this kind of trust lets the individual who set it up (ideally with the help of an attorney) personally control, invest and spend the assets placed into the trust. It is called revocable as the trustmaker (the individual who sets it up) can undo (cancel) the trust and regain personal ownership of all the assets.
There are many reasons people choose to set up a revocable living trust. Although a popular asset and estate management tool, not everyone needs one or would enjoy the benefits of having one. However, if you are someone who would benefit from having one, then you may want to contact an attorney and set one up.
Benefits of a Revocable Living Trust
Most people who establish a revocable living trust do so for the benefits it offers them and their heirs. Assets held by the trust transfer smoothly from the trustee (typically the individual who set up the trust) to the beneficiary upon the trustee’s passing. A revocable living trust eliminates the need for assets to go through probate, a process that can be difficult and time-consuming. This allows beneficiaries to have access to the assets immediately.
Privacy for both the original trustee and the beneficiary is another benefit of the revocable living trust. Assets that go through probate enter the public record. With a trust, only the trustee and beneficiary(ies) know the assets transferred – and their financial value. This can be exceptionally valuable in the transfer of high value assets like securities and physical stock certificates which could require a medallion signature guarantee.
The privacy offered by a revocable living trust also protects trustees and beneficiaries from identity theft. As the value of assets remains private, it is less likely identity thieves will discover the total value of an estate.
Another benefit for the trustee includes a pre-defined structure for asset management should the trustee become incapacitated in any way. While this could mean end-of-life concerns, it could also mean unfortunate, but not ultimately fatal, situations that can arise such as injury or illness. With a revocable living trust, a successor trustee takes over the management of the estate, avoiding a court process needed to determine and set up a conservatorship.
With so many benefits, it’s worth considering: Are there any drawbacks?
Yes, there are a few drawbacks to a revocable living trust. Cost is one. Setting up a living trust often costs more than setting up a will. Transferring assets can also require time and effort, although if you have enough assets that it would be headache, the long-term benefits and savings (especially in probate) are probably worth it. Finally, although a trust may make asset transfer easier, it doesn’t remove the need to have a will in addition.
Do You Need a Revocable Living Trust?
So how do you know if you need a revocable living trust? There are several ways to approach this question:
- Asset transfer upon death. It can cost several thousand dollars to set up a living trust. If your assets equal $100,000, the cost of probate might be about equal to the cost of setting up the trust. Does this mean if you have less than $100,000 you shouldn’t do it? Not necessarily; there are other factors to consider as well. For example, probate is different in every state, so if your state has a complex and costly probate process, the simple transfer a living trust offers can make things easier for individuals mourning one’s passing.
- Tax planning. The IRS does not view a revocable living trust as a transfer of assets, so it is not tax exempt. This is why the trust and trustee share the same SSN. Probate courts, however, do view assets in the trust as no longer owned by the trustee, which is why a revocable living trust avoids probate. Having a living trust allows the beneficiary to handle all tax matters privately, outside the supervision of the court.
- Privacy. There’s a lot value in privacy protection for trustees and beneficiaries, especially if you want to protect yourself and others from intrusive inquiries upon your passing, or from identity thieves.
- Health concerns. Knowing your assets will be managed by a successor trustee can be reassuring if you suffer from health conditions that can leave you in need of help managing your affairs.
Asset transfer and tax planning are two of the big reasons many people choose to establish a revocable living trust, but they aren’t the only ones. If you’re not sure if a revocable living trust is right for you, consider speaking with an attorney who specializes in estate planning and can help determine if it will be beneficial for you.
