What is a Revocable Living Trust?
I like to think of these types of trusts as a chest where you put your stuff for safekeeping. If you’re ever incapacitated, the chest has instructions for what happens to the money, property, or whatever you put in there. If your stuff is still in the chest when you pass it goes where you want it to go. Usually, the court doesn’t intervene. Want to know a little more about Revocable Living Trusts? Read on for the 5 things you need to know.
1. If you put your stuff in a Revocable Living Trust, it’s still your stuff!
A Revocable Living Trust is usually made by you and for your benefit. There are 3 main trust players. First a trust maker or grantor (that’s you). You make the trust. Second, a trustee who takes care of the stuff in the trust. Usually you are the first trustee and you pick a backup trustee (more on that on #2). Third is the beneficiary or the person that gets the benefit of whatever is in the trust. That’s usually you again… at first. You also name a secondary beneficairy to benefit from the trust after you pass. If you have minor kids, this is typically who you’d name. When you’re the grantor, trustee, and beneficiary, you hold control or “retain an interst in” the property in the trust therefore its your stuff.
2. Revocable Living Trusts are great estate planning tools for disability planning.
If anything happens to you and you become incapacitated (you can’t speak, are unconscious or impaired,) you won’t be able to take make decisions about your property, accounts, investments, etc. That’s when your backup trustee steps in. They’ll continue taking care of everything you’ve put in the trust according to the instructions you drafted when you first made the trust. You decide, ahead of time, what the backup trustee can and cannot do. Your back up trustee follows your instructions making sure that whatever goals you set for the trust will be accomplished. If you have a spouse or minor kids the trust can be set up so that even if you’re incapacitated and can’t provide for them, they’re still cared for financially.
3. Revocable Trusts are the best way to protect your assets for your kids.
Did you know children under 18 can’t inherit even you leave them something in a Will? They won’t get it until they’re 18, and then they’ll get it all at once. Until then the court creates a type of guardianship or conservatorship for the things that you left them. This means lawyers, money, and time spent where they won’t be able to access what was left to them in the way you want them to. Revocable Trusts can help you avoid all this. A Revocable Trust can hold assets for the minor until they turn 18. The backup trustee works with your kid’s guardian to distribute funds from the Trust as needed for your kid’s health, education, maintenance, and support. (If you haven’t picked a guardian, check out this blog post 5 Things to think about when you’re picking a guardian for your kids.)
4. A properly drafted Revocable Living Trust could avoid probate.
Probate is essentially a post death lawsuit against your estate after where a court determines whether you left a valid Will. If someone dies without a Will or Trust (intestate) their stuff must go through probate and the judge will distribute it according to Florida law. The probate process takes time and can get expensive because your descendants have to go through court and hire lawyers. A Revocable Living Trust can avoid probate because a Trust doesn’t have to be “proven”. Whatever you put in the Trust will be titled under the Trusts name. Since the Trust is the technical owner, when you pass the backup trustee steps in and keeps administering or distributing according to your instructions, typically without court intervention.
5. A Revocable Living Trust won’t save you estate taxes.
Many people think Revocable Trusts will save them estate taxes. They won’t. Because whatever you put in this type of Trust is still considered your stuff, it will be taxed the same way it would have been taxed if it was not in the Trust. The good thing is most Floridians don’t have to worry about estate taxes. First, Florida doesn’t have estate taxes. At the Federal level, currently (2022) only individual estates with over $11.7 million pay federal estate taxes. That number will stay at least until 2026. If you’re worried about taxes, there are other estate planning tools you can look to that provide more protection.
Closing thoughts.
There are more advantages to Revocable Trusts than what I discussed here, but these are the top 5 things I think everyone should know. There’s also disadvantages and pitfalls to Trusts so it’s important to consult an attorney if you’re thinking about a Trust-based estate plan. Curious whether a Revocable Living Trust is the best way to protect your family? Schedule a free 15-minute call with me to find out more. Email me at: [email protected], or visit the www.igslegal.com where you can schedule a call directly.
This post is not intended as legal advice, just to give you a little knowledge about what a Revocable Trust is and what it isn’t.
