For the uninitiated, the prospect of creating an estate plan can be intimidating. Most of the concepts, tools, strategies, and even terminology is foreign to someone who is new to estate planning. As the old adage says – knowledge is power. The more you learn about the estate planning process, the less intimidating it will be for you. In addition, by learning as much as possible before actually sitting down to work on your estate plan, you can rest assured that you are making well thought out and informed decisions. Learning how a revocable living trust works along with how one might fit into your estate plan is a good place to start.
Trust Basics – Understanding How a Trust Works
A trust is a legal relationship where property is held by one party for the benefit of another party. The person who creates a trust is referred to as the “Settlor”, “Trustor” or “Grantor.” The Settlor transfers property to a Trustee, appointed by the Settlor. The Trustee holds that property for the trust’s beneficiaries as well as invests trust assets and administers the trust terms according to the terms created by the Settlor. Trusts all fall into one of two categories – testamentary or living trusts. A testamentary trust is activated by a provision in the Settlor’s Will at the time of death whereas a living trust activates once all formalities of creation are in place and the trust is funded. Living trusts can be further divided into revocable and irrevocable living trusts. Because a testamentary trust is activated by a provision in the Settlor’s Will, and a Will can always be revoked up to the time of the Testator’s death, a testamentary trust is also revocable up to that point.
What Is the Significance of a Trust Being Revocable?
As the name implies, a revocable living trust is a trust that can be modified, revoked, or terminated by the Settlor. A Settlor can revoke the trust at any time and for any reason, or without providing a reason at all. Among other things, the Settlor of a revocable trust can modify the terms of the trust, replace the Trustee, or add and delete beneficiaries from the trust. Assets can also be added or removed from a revocable living trust rather easily. As a result, a revocable living trust is not a good choice if asset protection is your goal. The ease with which assets can be transferred into and out of a revocable living trust has a direct on how the law views those assets. When assets are held in an irrevocable living trust they are legally considered to be owned by the trust. Consequently, they are usually out of the reach of creditors, a bankruptcy trustee, or a spouse in a divorce. Assets held in a revocable living trust, however, are fair game because the Settlor can easily transfer them back into his/her name at any time.
Common Uses for a Revocable Living Trust
You should always consult with an experienced estate planning attorney before deciding what type of trust to create. There are, however, some common uses for a revocable living trust within an estate plan, including:
- Incapacity planning — a revocable living trust works as an incapacity planning tool by allowing you to appoint yourself as the Trustee of the trust someone who you would want to have authority over your assets in the event of your incapacity as the successor Trustee. In the event of your incapacity, your chosen successor takes over control of the trust assets automatically.
- Guarding a minor child’s inheritance – a minor child cannot inherit directly from your estate. A revocable living trust is often used to guard assets intended for a minor until the minor reaches the age of majority.
- Probate avoidance – probate is a lengthy and expensive process that most people would prefer to avoid. Because assets held in a trust are non-probate assets, meaning they bypass probate altogether, a revocable living trust is frequently used to distribute estate assets.
Contact Florida Revocable Living Trust Attorneys
Please join us for an upcoming FREE seminar. If you have additional questions or concerns about a revocable living trust, contact the experienced Florida revocable living trust attorneys at Kulas Law Group by calling (772) 398-0720 to schedule an appointment.