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Revocable Living Trusts

Revocable Living Trusts

Living Trust Attorney Daniella Horn

Are Revocable Living Trusts a good fit for you? It depends.

Is making handling your assets at death as easy as possible important to you? If so, a Revocable Trust makes the process as easy as possible.  Would you prefer keeping your estate plan and lists of your assets private?  If so, a Revocable Trust provides privacy, while a Will is a public record.  Are you getting older and could use some help managing your assets? Then, a Revocable Trust makes it easier for your loved ones to help out.

In short, a Revocable Trust might be more work up front, but that extra effort may be well worth the effort.

Over 20 Years of Experience: Some Thoughts on the Good, the Bad, and the Ugly of Revocable Trusts

To help you understand these documents, let me first give you some quick thoughts. Then, let’s review the pros and cons of a Revocable Trust. Finally, let me Debunk Some Revocable Living Trust Myths and Half-Truths. This way, you can deduce if a Revocable Living Trust is a good fit for you.

I have been an estate planning attorney for more than thirty years. In those years, I drafted Revocable Living Trusts as a member of five state bars. Each one was a good fit for the client. I have probably told twice as many people that they didn’t need Revocable Trust and instead used a Will. Without careful analysis, there is no way to know if a Revocable Living Trust fits you. A Revocable Trust is a useful tool but not a one-size-fits-all tool.

Enjoy this Article, and if you are interested in a Revocable Trust, contact me, and let’s brainstorm about your situation.  It’s What We Do!

Until We Have Our Consultation, Here Are Some Facts 

What is a Revocable Trust?

  • A revocable living trust is a legal entity that your signature brings into existence. Once signed, it will exist, but it will state that all the terms are “Revocable.” The Trust may own things, such as your real estate, but you can “Revoke” the Trust and take the assets back at any time. Further, most Revocable Living Trusts state that the Trustee must use all assets for your care during your lifetime. In most cases, you, as the Grantor, serve as the sole Trustee.

Revocable Trust vs. Irrevocable Trust?

  • In contrast, an “Irrevocable Trust” is a trust you sign and bring into existence that you cannot revoke. If you transfer your house into an irrevocable trust, the Trust owns the home, just as if you had given the house to a revocable trust. But, you will likely never be able to get the house back into your name.

A Revocable Trust Replaces Your Will.

  • A Revocable Living Trust is designed to hold title to your assets (bank accounts, real estate, personal property) during your lifetime for your benefit and then manage and dispose of your assets after your death. If structured correctly, a Revocable Living Trust may completely replace your Will. If you properly arrange all your assets, leaving nothing in your name at your death, there is no need to file your Will with the State. Probate is avoided.

What are the Costs of Forming a Revocable Trust?

  • The costs of creating the Revocable Living Trust include drafting the Trust by an Estate Planning Attorney and filing the deed(s) to move your real estate into the Trust.  You also need to take the time to set up your bank accounts and investment accounts to either move into the Trust during your life or at your death.  That work, though, is usually done with your financial advisor at no cost.  In addition, you may need to move more unique assets, such as a business or artwork, into the trust. 

Avoiding Probate is Nice, but There are Other Reasons for a Revocable Trust.

Aiding the Elderly or Those with Alzheimer’s.

  • A Revocable Living Trust can be an excellent tool if you are reaching an age or a medical condition where you need some help with your finances. The Trust allows the family to help but will enable you to control assets when you do not yet wish to turn overall control. You can name a trusted person co-trustee with the right to act independently but retain the right to act alone. This way, you can work now, but as your abilities diminish, your co-trustee can seamlessly take control.

Reducing the Chance and Cost of a Will Contest.

  • If you believe the chance of a Will Contest in your estate is high, then a Revocable Living Trust can reduce that risk. You cannot stop someone from filing a Will Challenge, but you can make it much more challenging, expensive, and less likely to succeed.

Convenience.

  • A Revocable Living Trust can be used to avoid Probate altogether. So even if its cost does not save your estate much money, it can make it easier for the person handling it. Making things easier is especially true if that person lives far from you. For example, if you live in Montgomery County, PA, and your children live in California, a Revocable Trust allows them to manage your assets at death without ever coming to Pennsylvania. 

Helping You Manage Your Assets.

  • If properly drafted, a Revocable Living Trust can appoint someone as your co-trustee who can help you manage your assets and bills, but without you giving up control. Typically, banks will work more seamlessly with your co-trustee than your agent under a Power of Attorney.

Real Estate in More Than One State.

  • If you have real estate in several states, then at your death, your estate must be opened in each State. Ancillary Probate increases the cost of probating your estate. Avoid this added cost by placing each property into a Revocable Living Trust, avoiding Probate in each State.

Bank Accounts or Investments in Several States.

  • Ancillary Probate may be necessary if you have bank accounts without branches in your home state. Another example is investments in businesses outside your home state that are not listed publicly. Avoid this added cost by placing each asset into a Revocable Living Trust, avoiding Probate in each State.

Replacing Your Will.

  • If drafted correctly and appropriately funded, a Revocable Living Will can replace your Will. But still, allow you to create asset protection trusts and use other techniques to protect your heirs. The terms can mirror terms that would have otherwise been in your Will.

A Revocable Living Trust will make sense if any of these reasons fit your needs.

Probate vs. Revocable Trust

Paige Zirrith, Living Trust Attorney

Debunking Living Trust Myths and Half-Truths

Let’s debunk the most prevalent lies and half-truths about Revocable Living Trust.

Claim: A Revocable Living Trust will help me avoid inheritance and estate taxes. False.

A Revocable Living Trust does NOT reduce your inheritance or estate taxes. These are the most common myths. These myths are often touted by those who sell canned revocable living trusts (in faux leather binders). These people feel comfortable telling you this lie because the inheritance and estate taxes are due when you are dead. So, you will never know that they lied to you. Remember that the Trust is “revocable.” Because you can revoke the Trust, you can, at any time, take all the assets back into your name. Therefore, the IRS and Department of Revenue ignore the Trust’s existence. Your assets in a revocable trust are considered yours when calculating your estate, inheritance, and income taxes. If you need more proof, email me, and I will send you links to the IRS website that state this fact.

Claim: A Revocable Trust will shelter my assets from my creditors. False.

Again, the “Revocable” Living Trust can be “revoked,” If you can get the asset back, your creditors can take it. The Trust does not protect you from creditors during your lifetime or at your death. Asset protection differs from an irrevocable trust, which you cannot revoke and can be used to remove assets from creditors’ claims.

Claim: A Non-Irrevocable Trust will shelter my assets from my nursing home bills and Medicaid. False.

Because the Trust is “revocable,” the assets are considered yours when evaluating Medicaid eligibility. Use of an “Irrevocable Trust” where you have no right to the assets you gave away into the Trust could shelter your assets, but never a “Revocable” trust. Again, for further proof, review the Medicaid website.

Claim: Creating a Trust is All you Need to avoid Probate. False.

Forming the Revocable Living Trust is only the first step. You must arrange all your assets to utilize the Revocable Trust to avoid the Probate Process. Real estate must be moved into the trust by filing deeds. Bank accounts must either move into the Trust or pour into the Trust at your death. You must complete beneficiary designations for other appropriate assets, such as life insurance policies, annuities, and qualified plans (IRA, 401k, TIAA-CREF, SEP, etc.).

Further, as the years pass, you will likely change your investments. You may buy a new CD or open a new checking account. Make these changes with the overall Revocable Living Trust plan in mind. Otherwise, you might undermine the goals that caused you to form the Trust in the first place.

Claim: A Revocable Trust Avoids All Filings with the State. Misleading.

The answer depends on the state’s rules in which you were a resident at the time of your death. If you die a Floridian, Florida law requires that your successor trustee file a notice with the court in the county where you passed a resident. Other states are beginning to require similar filings. Furthermore, if your successor trustee wishes to start specific statutes of limitation for creditors, they will likely file some paperwork with the states.

Claim: My Estate Won’t Need a Lawyer if I Have a Revocable Living Trust. Misleading.

The need for a lawyer to help with your estate has nothing to do with a Revocable Living Trust. If your executor has the skills to handle your estate alone, then there is no need for a lawyer, even if you have no Revocable Living Trust. Similarly, your executor may need help with some steps with or without a Revocable trust. For example, filing inheritance and estate tax returns, obtaining beneficiary releases, and selling real estate, a business, or settling lawsuits. These are situations where your Trustee will still need a lawyer’s assistance, even if you have a revocable living trust.

Revocable Living Trusts

Revocable Trust Paralegal, Riley.

Here Are Some Typical Revocable Trust Questions

What is the Difference Between Irrevocable and Revocable Trusts?

The most significant difference is that the Grantor can revoke a Revocable Trust and reclaim any assets placed in the Trust. Meanwhile, the Grantor cannot cancel the Trust or recover gifted assets in a typical irrevocable trust. Because of these revocation powers, courts and creditors treat Revocable Trusts like they do not exist. For example, a Revocable Trust uses the Grantor’s social security number rather than a tax ID number. Creditors can easily access a revocable trust, and the Grantor’s taxable estate includes its assets. In contrast, an Irrevocable Trust can avoid creditors and pass outside the Grantor’s estate.

What is the Difference Between a Revocable Trust and a Living Trust?

A Revocable Trust and a Living Trust refer to the same type of Trust. “Living” refers to the ease of modifying the Trust. “Revocable” applies to you retaining the right to revoke the Trust entirely.

Will vs. Trust?

This refers to either using a Will or replacing your Will with a Revocable Living Trust. Read about Is a Revocable Living Trust Right For Me to determine if the cost to create a Revocable Trust is worth the Trust’s benefits.

After setting up a Revocable Living Trust, is there any requirement to report to the IRS or State that you have set up a Trust?

A Revocable Living Trust is a Grantor Trust, so you report all income under your social security number. Notifying the IRS or the State of the Trust’s formation is unnecessary.

Do I Still Own My Real Estate Used For The Creation of the Revocable Trust?

When real estate funds a Revocable Trust, the land’s ownership shifts from your name to the Trust’s. The deed will state that the Trust owns the property. Even though you don’t own the land, the Revocable Trust is for your benefit. Further, you can remove the property anytime or revoke the Trust.

What Happens if the Person I Leave Something To in a Revocable Trust Dies Before Me?

Because the Trust is Revocable, you can always modify the Trust as your life situation changes. But, like a Will, a well-drafted Revocable Trust clearly states where assets pass should a beneficiary diGrantore the Grantor. A good Estate Planning Lawyer asks you what result you wish and drafts terms accordingly.

For example, a Montgomery County, Pennsylvania, client wants me to set up an irrevocable third-person special needs trust for her autistic Grandson. This Grandson could live in Camden County, New Jersey. I would ask her what should happen to any unused funds at the Grandson’s death. She might say that if her Grandson doesn’t survive her, the resources earmarked for the Special Needs Trust should pass to other living grandchildren. She might also say that if her Grandson dies after her, any remaining funds pass to a charity supporting Autism research. Whatever her wish, I will then incorporate those terms into her Trust. The Trustee must follow the Trust’s terms.

How To Create a Revocable Living Trust?

You create a trust by signing the document. Your signature “brings the trust to life.” A Revocable Trust may serve many purposes during your life and after your death. For example, your Revocable Living Trust could have Disclaimer Trust provisions to protect your spouse or Dynasty Trust provisions creating protective trusts sheltering your inheritance from your children’s spouses and creditors. Reviewing your goals and assets will help determine what provisions best fit your needs. Call for a free consultation!

Who Needs a Revocable Living Trust?

No person must have a Revocable Living Trust, but depending on your assets and goals, a Revocable Living Trust provides savings and privacy. Read more about Is a Revocable Living Trust Right for Me?

Can a Trustee be a Beneficiary?

When using a Revocable Living Trust, a Trustee is often a Beneficiary. When using an Irrevocable Trust, the Trustee can be a Beneficiary, but this comes at a cost. Depending on the type of Trust, having the Beneficiary serve as the Trustee could open the Trust to attack by creditors.

Reasonable Prices | Years of Experience | We Make Trusts and Estate Planning Easier

Revocable Living Trust might be an excellent estate planning tool for you, but it will take more than a short seminar to find out. Luckily, it will not cost you anything to get more information. Contact Us to set up a complimentary initial estate planning consultation. You can count on one thing: we won’t sell you a Revocable Living Trust unless it fits your estate plan. Please read more about our Estate Planning Process.

Klenk Law has focused only on Estate Law for more than two decades. We’ve seen it all, and this experience allows us to explain sophisticated estate planning techniques clearly and concisely. We make it easy for you to understand Revocable Living Trusts so you can make the best decisions for yourself and your family. 

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