If you’re like a lot of people, you’ve probably spent more time planning your next vacation than planning your estate. But without proper planning, much of what you worked for during your life could be distributed to unintended beneficiaries or lost to unnecessary complications.
A revocable living trust is a popular estate planning tool that lets you control how your property is handled during your life and after your death. It also helps avoid probate and transfers your property quickly and privately.
The trust agreement is a legal document that partially replaces a Will. You transfer assets, such as your house, bank accounts, or stocks, into the Trustee’s name. The Trustee, usually you or someone you have confidence in, manages the property for the benefit of you or your family. It’s called a "living trust" because it’s created while you are still alive. And since it’s revocable, you can change or cancel the trust at any time before your death.
Creating a trust is a personal decision based on your own unique situation. A living trust has many benefits, but it may not do everything you need.
BENEFITS OF A REVOCABLE LIVING TRUST.
A properly executed living trust can take care of you if you become unable to care for yourself. This avoids the delay of a court-ordered guardianship. This feature highlights the importance of adequately funding your trust when it's set up. Be sure to name an alternate Trustee to manage the trust if you become unable to care for yourself.
Revocable living trusts avoid probate. Probate is the legal process that transfers property after a person’s death. By transferring legal title to the trust, the property is no longer part of your estate; it’s already been transferred.
There’s also typically no public record required, unlike with a Will. Be aware, if property is placed in the trust after your death, then there may appear in a public record.
If you want to leave assets to a child or someone who may have trouble managing money, a living trust gives you control over the manner and timing of payments. For example, you can leave money to your 12-year-old grand-daughter to pay for college or to help with a down-payment on her first house.
For most simple estates, a living trust has fewer legal formalities than a Will, making it easier to create and change.
If you own property in other states, a living trust will protect your heirs from needing to administer out-of-state probate procedures.
LIMITATIONS OF REVOCABLE LIVING TRUSTS.
Since you retain the right to use and enjoy the property, in the eyes of the IRS, it remains your taxable property. If you receive income from the trust, you must report the income on your tax return.
Revocable living trusts are expensive to set up and maintain.
You create a trust to keep control over the distribution of your property. Although some trusts can protect your assets from creditors, a revocable living trust cannot. Since this is a revocable trust, you can terminate it at will. So a creditor can force the termination to get the assets.
If you have questions about whether a revocable living trust is right for your family's circumstance, give us a call at 253.858.5434 to make an appointment today. We proudly serve clients throughout Washington and Idaho and are available to meet in person, by phone, or via Skype or FaceTime.