Why Include a Revocable Living Trust as a part of a Comprehensive Estate Plan?

You might have heard about Trusts being something only the Rich and Famous have. But they are not the only ones who can benefit from them! Trusts can be one of the most misunderstood aspects of estate planning. Read on to learn more about what they are, what they do, and how anyone can benefit from setting one up.

A Revocable Living Trust is an entity, and the entity manages the assets and interest the trust owns, during the lifetime of the grantor(s) and beyond. 

Because the Trust is a Living Trust, it becomes an entity during the lifetime of the Grantor (Creator).

The Grantor (or Grantors if this is a Family Trust) are also the Trustees during their lifetime.

After the death of the Grantor(s), the Trust lives on, managed by the Successor Trustee, regardless and irrespective of any Court process.

What does it mean to “fund the Trust”?

The Trust, as an entity, must “own” the assets and interests it manages and controls.  Re-titling assets or interest so that the Trust owns these assets/interest is “funding” the Trust.

The Trust, because it is an entity, can be named as a direct beneficiary on non-probate assets as well such as:  life insurance policies, IRA’s 401k’s, or similar interests which bear a contractual beneficiary designation. The Trust can only control and manage the assets/interests funded into it.

What are the powers and obligations of the trustee(s)?

The named Trustee(s) are tasked with protecting, preserving, and managing the assets/interests the Trust owns per the instructions in the Trust Instrument (the document).

In most Revocable Living Trusts, the Grantor(s) are the initial Trustee(s) during their lifetime and maintain complete control of the assets/interests owned by the Trust during their lifetime.

A Trustee is a fiduciary, in other words, is in a position of trust and loyalty.  A Trustee must never engage in self-dealing, never perform Trustee duties under the undue influence of a third party and must always abide by the law and act in the best interests of the Beneficiaries.

Does a Revocable Living Trust work alongside a will? 

There are many, coordinated, “moving parts” in an estate plan.  A Will works alongside of your Trust.  This type of Will is called a “pour over will.” At the time of your death, the Will “sends” any assets you did not title into the Trust during your lifetime in that direction (into the Trust), via the authority of your Executor.

Does re-titling my real estate into the Trust cause a taxable event? 

Because you, as the Grantor(s) are also the Trustee(s) of the Trust, there will be very few changes in the nature of the real estate and how it is handled.  As the Trustee(s), you may also choose to purchase real estate in the name of the Trust after the Trust is created.   *Note:  If you are interested in refinancing previously owned property, many lending institutions require you to refinance in your personal name and then transfer the property to your trust.

Note:  the revocable nature of the Trust should ensure that the mortgage is not altered, as long as you are the Trustee(s).

It is always a good idea to check with your insurance agent to make sure that the transfer does not affect your insurance coverage.

How does the Revocable Living Trust change when I die? 

As one of the benefits of engaging in this kind of Trust Planning, your Trust lives on after you die.  There are some changes to the nature of the Trust at that time, however:  i) The Trust becomes irrevocable at the death of all Grantors; ii) Your named Successor Trustee must sign the Certificate of Trust at that time and then will be the Acting Trustee.

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