What is a revocable living trust and how does it work?

What is a revocable living trust and how does it work?

A revocable living trust is an estate planning tool that allows you to manage and protect your assets while you are alive and to pass them on to your beneficiaries when you pass away. It gives you control and flexibility over how your assets are handled and distributed when you are gone.

With a revocable living trust, you can choose who will manage your assets and when they will be distributed. You can also make changes to the trust if you need to. The trust is revocable because it can be changed or revoked while you are alive. With a revocable living trust, you will have peace of mind knowing that your assets are being managed and distributed according to your wishes.

If you create a revocable living trust, you will be the trustee and will have full access to your assets until you die. Trustees have full legal ownership of the assets in the trust, but they have a fiduciary responsibility to act in the best interests of the beneficiaries.

Benefits of a revocable living trust

• Peace of mind. With a revocable living trust, you will have peace of mind knowing that your assets are being managed and distributed according to your wishes.
• Control over your assets. You will have control over your assets and can make changes to your trust at any time. This includes being able to decide who will manage your assets, how they will be managed, and when they will be distributed when you are gone.
• Avoid probate. A revocable living trust avoids probate so you don’t have to go through the expensive and time-consuming probate process. Because your assets will be transferred directly to your beneficiaries when you die, the probate process will not be needed.
• Possible tax savings. Putting your assets in a revocable living trust may result in tax savings if your heirs receive the assets tax-free.
• Distribute your assets on your terms. A revocable living trust allows you to distribute your assets as you see fit and on your terms, even if you have debt or a terminal illness.
• Keep your estate plan private. The process of creating a revocable living trust is private, so the public will not know about your estate plan.

How does a revocable living trust work?

The first step in creating a revocable living trust is signing the trust document. Once the trust is created, you can add assets to the trust, such as bank accounts, real estate, stocks, and other property. You can also name beneficiaries who will receive your assets when you pass away. When you die, the trustee will take over managing your assets and distributing them to your beneficiaries according to the terms of the trust.

Steps to setting up a revocable living trust

• Determine if a revocable living trust is right for you. Only you can decide if a revocable living trust is right for you. You should review your current estate plan to see if a revocable living trust can help you achieve your goals.
• Choose who will become the trustee. You will need to select the person who will take over managing your assets when you pass away and act as the trustee of the trust.
• Put your assets in the trust. You will need to put your assets, including real estate, investments, and personal property, into the trust. You may want to keep some assets outside of the trust, such as life insurance, a pension, and minor children who are not named as beneficiaries.
• Name your beneficiaries. You will need to name your beneficiaries and decide how they will receive the assets in the trust. You may choose to have your assets go straight to your loved ones or have them receive a set amount each year.
• Name a successor trustee. You will need to name a successor trustee in case the original trustee is unable or unwilling to serve.

Types of assets that can be placed into a revocable living trust

• Real estate. You can put your real estate assets in a revocable living trust, including the deed to your home, land, or other properties. Your successor trustee will manage the real estate in the trust until it is transferred to the beneficiaries at the end of the trust term.
• Investments. You can place investments, including stocks, bonds, and mutual funds, into a revocable living trust. You will decide when and how these assets will be distributed to your beneficiaries.
• Personal property. You can place personal property, such as furniture, jewelry, and heirlooms, into a revocable living trust. Your successor trustee will manage these assets until they are transferred to your beneficiaries at the end of the trust term.
• Cash. You can place cash, such as savings, stocks, bonds, and other cash assets, into a revocable living trust. Your trustee will manage these assets until they are distributed to your beneficiaries.
• Life insurance. You can name a life insurance policy as a beneficiary of your trust to help protect your loved ones and make sure they are provided for in case you die while your trust is in place.

How to choose a trustee

• Choose someone you trust. Your successor trustee will manage your assets and distribute them to your beneficiaries according to the terms of your trust. You should choose someone you trust and who is responsible and reliable.
• Choose someone who can manage your assets. You should choose someone who can manage the assets in your trust and make sure they are distributed when you want them to be.
• Choose someone who has the assets to serve as the trustee. Your trustee will be responsible for managing your assets and paying any taxes on them. You will need to make sure your trustee has the assets to do this.

Potential drawbacks of a revocable living trust

• More expensive. A revocable living trust can be more expensive than other types of estate planning options. You may be able to offset the cost by taking advantage of tax savings that are available to people who use trusts.
• More time-consuming. Creating a revocable living trust is more time-consuming than other types of estate planning options. You may also need to update your trust as your situation changes.
• More difficult to prove. If you are in a situation where you need to prove your trust exists, it may be more difficult to do so with a revocable living trust than with other types of trusts.
• Less certain terms. The terms in a revocable living trust are less certain than in a will. Your heirs may have to go to court to have the trust terms enforced.

How to amend or revoke a revocable living trust

Determine if you should amend your trust. If you have changed your situation or want to make changes to the trust, you may want to amend your trust. You will need to create an amendment or a completely new trust document.

Determine if you should revoke your trust. If you have changed your situation or want to change the beneficiaries or terms of your trust, you will need to revoke the trust and create a new one. You may want to revoke your trust if you are diagnosed with a terminal illness.

Find a trust attorney to help you. You should consult with a trust attorney if you want to amend or revoke your trust. They can help you create the necessary documents and make any needed changes to your trust.

Alternatives to a revocable living trust

Wills are the most common type of estate planning document and can be used to pass your assets to your beneficiaries after your death. Living trusts are trusts that are created while the person is alive and make the same transfers at death as a will does. Pay-on-death accounts are bank accounts that have an ownership designation that allows assets to pass to heirs without probate.