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What Is a Revocable Living Trust?
A revocable living trust is a legal instrument that can be used to manage and distribute your assets throughout your lifetime and after your death.
A written agreement or declaration establishes a revocable living trust, which designates a “trustee” to administer the property given to the trust and provides explicit instructions on how the property should be maintained and finally dispersed. If you want your trust to take the place of a probate procedure (court administration of property after death), you should lawfully transfer nearly all of your assets to the trustee and provide the trustee instructions on how to distribute trust assets after your death. The agreement or declaration of a revocable living trust is usually longer and more complicated than a will, and the transfer of assets to the trustee can be time-consuming and costly. A revocable living trust can be created by any competent adult.
A revocable living trust is a legal form that you can use to leave your belongings to persons and organizations after you die. It works by transferring your assets and property into a new entity known as a “trust.” When you (the trust’s Grantor and Initial Trustee) die, a Successor Trustee will transfer the trust’s assets according to your instructions.
A Revocable Living Trust is a written instrument created during the lifetime of the Grantor (the person who establishes the trust) that is effective with respect to the assets deposited into the trust during the Grantor’s lifetime. Until the trust is funded with assets, it is ineffective. The Revocable Living Trust differs from a testamentary trust, which is included in a Last Will and Testament and only takes effect after the testator’s death (the drafter of the Will). So long as one or more other people hold a beneficial interest, New York now allows the same person to be both the sole trustee and the single holder of the current beneficial interest. The other person’s beneficial interest can be vested or contingent (present or future). Unless a lifetime trust clearly states that it is revocable, it is assumed to be irrevocable.
Advantages and Disadvantages of a Revocable Living Trust
Making a will is a time-honored and widely used technique of expressing your wishes for asset distribution after death. On the other hand, a revocable living trust, or RLT, is one of many types of trusts. The term “living” alludes to the fact that the trust is established while you are still alive (as opposed to a testamentary trust). The term “revocable” refers to a trust that you, the grantor, can amend at any time (unlike irrevocable trusts). Even while the trust officially owns the assets, you retain control over them until you die. Listed down below are the advantages and disadvantages of a revocable living trust:
How To Create a Revocable Living Trust?
A living trust is a legal agreement that transfers your assets to a trust throughout your lifetime and then distributes them to your beneficiaries when you die. The trust gives you authority over your assets while also avoiding probate. To maximize the trust’s benefits, it’s best to put as many assets into it as possible, although some assets, such as life insurance and IRAs (Individual Retirement Accounts), aren’t suitable for transfer. While the grantor is alive, the trust manages the assets and distributes them to named beneficiaries after his death. Continue reading below to know more on how to create a revocable living trust:
1. Identify the parties that should be included in a living trust
Before creating your own revocable living trust, you should already have in mind who are the parties that should be included in your living trust. By getting to know who they will be already, you have a clear understanding on how you are going to write it and who are the people that will be appointed to different parties. Listed down below are the different types of parties that you should appoint once you create your living trust:
- The grantor – also known as a trustor, is the person who establishes and funds the trust.
- The trustee– is the individual who will be in charge of the trust’s assets. Even if the grantor is alive, the trustee will have power over the trust assets if the grantor is not the trustee.
- Co-grantors/Co-trustee – : Co-grantors, also known as co-trustees, are typically married couples who jointly own and operate the trust. When one of the co-trustees passes away, the other takes over full control of the trust.
- Successor Trustee: When the primary trustee dies or becomes disabled, the successor trustee is named to take over responsibility of the trust.
2. Identify the types of property that can be included in the living trust
High-value property is placed in a trust to secure it until the assets are ready to be transferred to the designated beneficiaries. Here are a few examples:
- Stocks, bonds, and mutual funds are examples of real estate securities.
- Company shares and partnership interests are examples of business interests.
- Bank accounts, cash, and payable notes
- Jewelry, artwork, antiques, and other valuable personal items
Typically, low-value property or assets that require insurance, such as vehicles, are not placed in a trust.
3. Look for templates that you will use for your living trust
If you have already established who your chosen trustee is and the property that will go to them, you can now start looking for templates that you will be using for your living trust. You may search it online or you can ask help from your lawyer.
4. Drafting the trust
You’re ready to draft the trust agreement, also known as a declaration of trust, after you’ve made the crucial decisions regarding what will be in the trust and who will be involved in it. The trustee and beneficiaries are listed in this document. The trust agreement establishes the trust’s regulations and specifies how the trustee is to distribute the assets and what control he or she has over them. After you’ve prepared the trust, it’s time to put it into action. You must sign it in the presence of a notary public and/or witnesses (this varies by state, so make sure you understand the requirements). You don’t need to file the trust with any court or agency; only maintain it in a safe place with convenient access.
5. Contact your lawyer
It is not easy to create your own revocable living trust, a lawyer should always be consulted when you have already finalized all the people that you will appoint on your properties and your lawyer will be the one who will be drafting or finishing creating your living trust. It is important to consult your lawyer about your living trust to ensure that everything that you want will be included and there would be no lapses when you are already done with your living trust.
Is it possible to revoke a living trust?
A revocable trust is the form of trust that most people refer to as a “living trust.” The phrase “living” trust, on the other hand, simply refers to a trust established during the lifetime of the trustmaker.
What are the downsides of establishing a Revocable Living Trust?
Setting up, maintaining, or changing a Living Trust might be more difficult. All property, including land, accounts, and securities, must be individually transferred to the trust. Any remaining goods or funds not covered by your Living Trust would almost certainly require a simple Last Will.
What is a Revocable Living Trust and how does it work?
When a trust is established, a Trustee must be named to oversee its administration. As long as you are alive, you (the Grantor) are nearly always the Trustee and the initial Beneficiary of a Revocable Living Trust. When you (the Grantor/Trustee) pass away, the Successor Trustee takes over the management of the trust. The trust is no longer revocable and the conditions of the trust cannot be amended after your death.
Can I be my own trustee if I create a Living Trust?
Yes. It is rather typical for a grantor to act as his or her own trustee. One of the advantages of a Living Trust is that it allows the grantor to keep control of their assets for the remainder of their lives. However, you must name a Successor Trustee (Credit Union Trust) who will handle your Living Trust after your death.
What’s the distinction between a revocable and an irrevocable trust?
Even the grantor cannot withdraw or change an Irrevocable Trust, and the property transferred to the Irrevocable Trust cannot be returned to the grantor. During the grantor’s lifetime, a Revocable Living Trust can be changed or revoked by the grantor. When a grantor dies, a Revocable Trust becomes an Irrevocable Trust, and the trust is managed by a successor trustee. Although an Irrevocable Trust may offer tax advantages over a Revocable Trust because it is considered as a separate taxable entity, gifts made to an Irrevocable Trust may still be included in calculating the worth of an estate for estate tax purposes.
As a result, a living trust that leaves assets to a surviving spouse under a credit shelter trust provides asset protection for the surviving spouse, but it may subject children who inherit property from the surviving spouse to higher income tax. A living trust can be set up to allow the surviving spouse to choose whether the deceased spouse’s assets should be placed in a unified credit trust or a marital trust. In this way, the surviving spouse can seek legal and tax advice, analyze the value of assets at the time of transfer, and finance the marital and credit trusts in a way that best serves the family’s legal and financial objectives. Download now our Revocable Living Trusts template so that you can use it anytime!