Klenk Law

What is a Revocable Living Trust?

Posted on Thu May 15, 2014, on Estate Planning

A revocable living trust is a trust created during lifetime over which the grantor reserves the right to terminate, revoke, modify, or amend. These trusts are generally used to avoid probate, provide assistance to a parent who needs help managing assets, address family situations, provide privacy and provide for orderly administration of assets after your death. During your lifetime, any assets in the revocable trust are used for your care. Because the trust is revocable the assets in the trust are still available to your creditors and are part of your taxable estate, but they are not part of you probate estate.

Because the revocable living trust helps avoid probate, it is often referred to as a “will substitute”, because it accomplishes all the tasks that a will would normally perform. Even though a perfectly executed revocable living trust might be a will substitute, an estate plan using a revocable living trust includes a pour over will. A pour over will names an executor and instructs the executor to gather any assets that you owned at your death but did not place into the revocable living during your lifetime and “pour” them into the trust after your death.

For example, let’s say that during your lifetime you moved all your Atlantic County real estate into the revocable trust and named the trust as the payable-on-death beneficiary of your bank accounts, but just before you died, you purchased a CD at the bank but forgot to name the revocable trust as beneficiary of the CD. At your death your successor trustee takes over control of the revocable trust, which already owns the Atlantic County house. The successor trustee collects the payable-on-death bank accounts using your death certificate, but the trustee is unable to collect the CD as it is in your name and does not name the revocable trust as beneficiary. To collect the CD, your executor must file the will and open the probate process.

Another need for a will, even if you have a revocable living trust, is to pursue lawsuits. If you die because you were hit by a car, the successor trustee of your revocable living trust will not be able to bring a claim for wrongful death in the Atlantic County court system. Instead, your executor will file your will, be recognized by the Atlantic County Surrogate as the fiduciary of your estate, and with that power, the executor can bring a suit against the driver of the car who harmed you. After the suit, any money obtained will then “pour” into the revocable living trust.

Normally, during your lifetime you will remain as the only trustee of the revocable living trust. If the time comes when you need some help managing your investments, you can name a co-trustee who can also have the power to manage the trust for your benefit alongside yourself. If you don’t like how the trustee is managing the trust, you can always remove and replace him with someone else.

You should also name a successor trustee for yourself, to take over if you are incapacitated or passed away. This person will then step in, manage the trust for your benefit during your lifetime and after your death, follow the trust terms just as if the revocable living trust was your will and the successor trustee was executor. The difference being that the revocable trust is managed without involving the Atlantic County Surrogate.

When you become incapacitated or die, the trust’s terms become irrevocable. You are the only person with the right to modify the trust terms.

A revocable living trust might fit well with your estate plan. Consult with an estate-planning attorney familiar with Atlantic County, New Jersey rules to review the options that best fit your needs.

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