what is a revocable living trust?
- jimLv 61 decade agoFavorite Answer
What is a revocable living trust agreement?
When you have a will drawn up, you are actually creating a testamentary trust. Unfortunatly, when a person passes away, there will must go through the probate system.
In many cases, it may be a year or longer before the estate is divided among the benificiaries. By that time, there's a good possibility that the lawyer(s) get a large portion of it, leaving just a percentage for everyone else. The average legal and court fees run around 10%.
The most popular trust, by far, is the revocable living trust. It's use as a technique for avoiding probate has become very popular during the past few years, and it is anticipated that it will continue it's dramatic increase in popularity with the general public.
A trust is a relationship in which one person transfers property to a second person for the benefit of a third person. The person creating the trust is called the Grantor. The person or entity having legal title to the trust property is the Trustee, and the person whose benefit the trust is created is called the Beneficiary. The same person can be Grantor, Trustee, and the Beneficiary in Revocable Living Trust only. In an Irrevocable Trust the trustee must be diffrent from, and preferably not related to, either the grantor or the beneficiaries.
A Revocable Living Trust is an arrangement in which the grantor places property in trust, naming him or herself or some other person as Trustee, or Co-Trustee, but not reserving the right to revoke the trust so that the property can be returned to the grantor. Generally, the trust agreement provides that upon the death of the grantor the property shall go to the named beneficiaries. The advantages of the Revocable Living Trust include the following:
(1.) Automatically avoids all probate of the property;
(2.) Avoids all legal fees and expenses associated with probate;
(3.) Provides for property management or disbursement;
(4.) Avoids contest of wills;
(5.) Assures uninterrupted income and access to principle for family beneficiaries;
(6.) Avoids the emotional trauma, aggravation and frustration of a complicated probate system that does not serve any of the parties involved;
(7.) Maintains privacy - nothing is printed in the news paper as when a person dies either intestate (no will) or with only a will;
(8.) Eliminates time delays in settling the estate - the Successor Trustee can immediatly disburse the funds as indicated in the Revocable Living Trust agreement;
(9.) Protects up to $600,000 from federal estate taxes for a single person and up to $1.2 million for a married couple.
How the Revocable Living Trust Works
It is fun being a Trustee on a Revocable Living trust. You, as the Grantor or owner of the assets, transfer those assets to the John Doe Family Trust. John Doe is the Grantor and the Trustee. As long as she lives she is also the Beneficiary. After she dies he Successor Trustee follows the instructions in the Revocable Trust agreement as to the management or sale and disbursement of the assets.
You Learn the language of the Trust with a Revocable Living Trust. You write the minutes which become a sort of history of the intent of the Trust - what you as Grantor want to achieve through your accumulation of assets. You also manage and direct the use of the assets.
Suppose that a married couple provides in a Revocable Living trust agreement that all or part of their assets are declared to be held by them, as Co-Trustee, for their benefit during their lifetimes, and upon death of a spouse to go to the surviving spouse, or in the event of simultaneous deaths to go directly to designated beneficiaries. Immediately upon death of either spouse, all legal interests in all the property would automatically revert to the surviving spouse, as sole Trustee, free and clear from any probate processes or other court delays. The surviving spouse would have the option to place the assets in another Revocable Trust with an adult child or other family member as Co-Trustee and would avoid probate again and again.
Suppose further, as a second example, that an unmarried person provides in a Revocable Living Trust agreement, that all or part of his or her assets are declared to be held by the grantor and a third party, as Co-Trustee, for the Grantor's benefit during his or her lifetime, and upon the death of the Grantor to go to the beneficiaries designated in the agreement. Immediately upon the Grantor's death, all legal interest in all property would automatically revert to the Co-Trustee, as an adult, he or she could be the Co-Trustee, and upon the Grantor's death, he or she would automatically have title to the property for himself or herself.
Contrary to what many attorneys say even the smallest estate may benefit from the use of a Revocable Living Trust.
Revocable Living Trusts Take Precedence Over a Will!
We have been discussing one of two principle ways to pass property, upon death of an individual, to the persons whom the individual wants to have it. The other method is by will. The transfer by will requires the probate process whereas the Revocable Living trust completely avoids the probate process as well as the need for an attorney.
What happens if an individual does both - leaves a property to a person in a will and also leaves the same property to another person in a Revocable Living Trust? The trust takes precedence over the will! For example, if any individual has $100,000 in stocks and first writes a valid will leaving the specific stocks to John Doe, and then later executes a Revocable Living Trust, leaving the same stocks to John Doe, Jane Doe receives the stocks upon the individual's death because the trust takes precedence over the will. Suppose further that the individual first placed the stock in a Revocable Living trust for John Doe and later executed a will leaving the same
stocks to Jane Doe. In this case, John Doe receives the stocks. The Trust takes precedence over the will no matter whether it was executed before or after the will!
The Revocable Living Trust takes precedence over the will in both cases because the title (ownership) of the property was transferred in each transaction when the Trust agreement was executed. The title (ownership) to the stocks could not be transferred by will until death of the owner. Even though both a Trust and a will may be revoked, the Trust actually transfers title to the Trustee at the time of the execution of the Trust and a will does not.
Trusts & Taxes
As a general rule, a Trust, as an individual is a taxable entity. A Trustee must file an income tax return for the Trust and pay the tax on it's taxable income unless the income is passed through to the beneficiaries - which is usually the case with the Revocable Living Trust. Many times a Trust is established primarily because the beneficiary is in a lower tax bracket then the grantor. The establishment of several trusts can avoid probate they do not altogether avoid estate or gift taxes. There are other techniques available for avoiding estate and gift taxes.
Marital Property Rights
In most states the laws give certain legal rights to a surviving spouse which cannot be defeated by a will. Some of these state laws, but not all, also give certain rights to a surviving spouse which cannot be defeated by gifts, by the Revocable living Trust or other transfers. These marital property rights are called community property, dower, courtesy, elective rights, statutory rights or various other terms. These rights typically give one-half or one-third, or some other portion of the estate of the deceased to the surviving spouse.
If community property is to be placed in a Revocable Trust by a married person, The grantor's spouse should join in the execution of the Trust agreement. In general, community property consists of whatever property is gained during the marriage by the toil, talent or other productive faculty of either spouse. In general, the property obtained by one spouse by gift, devise, or decent is not included in community property. In community property states, you should check the specific laws of your state on this question. They vary from state to state. Therefore, it is suggested that all transfers of property by a married people as they generally own property in joint names.
The concept behind these laws is that with certain exceptions, property acquired during marriage belongs to both spouses. The marital property rights vary from state to state and the state laws with respect to marital property rights transferred by a Living Trust agreement are inconsistent and sometimes difficult to interpret. It is recommended that any married person obtain the consent of the spouse in any Trust created during marriage.
The Trust doctrine was not fashioned by the courts to deny rights of the spouse. On the contrary, the Trust may be used by both married and unmarried persons as an easy, simple, inexpensive way to transfer property from one generation to another without the probate process.
Selection of Trustee and Successor Trustees
For purposes of avoiding probate, the majority of grantors place themselves as the Trustee or Co-Trustee. The Grantor should consider a Co-Trustee especially if an adult beneficiary (for example, spouse or adult child) is a primary or sole beneficiary. A Grantor who wants a third party Trustee should consider adult children, other relatives or business associates. Having a lawyer, Trust officer, bank or Trust Company as Trustee defeats one of the major objectives of the Trust: avoiding excessive legal fees and probate expenses. It is also very important to appoint Successor Trustees as this avoids the expenses, delays, and inconveniences of court appointments.
Revocation and Amendment
The great advantage of a Revocable Living Trust is the ability, at any time, for any reason, or for no reason, to change it or revoke it. It can be revoked or amended by a mere stroke of a pen. The revocation document simply describes the trust is being revoked. Immediately upon signing the revocation and transmitting it to the Trustee, the trust is automatically terminated and revoked as a matter of law. (If the trust agreement is recorded, the revocation must also be recorded.) No lawyers, no judges, no lengthy court proceedings are needed. The Grantor is in complete control of any property and it can remain a private matter, since it is kept out of the hands of the probate lawyers.
Note: Revocable Living Trusts give no asset protection while one is living. Study the section on Irrevocable Trusts if you are interested in asset protection.
This is a brief statement of Trusts. Everyone has the right to use a Trust to avoid probate and it is absolutely legal and valid in all states.
- dougzinbostonLv 41 decade ago
I couldn't have plagiarised it any better than what was typed above!Source(s): BSBA Finance, studying for Certified Finanical Planner's license
- 4 years ago
what is an irrevocable trust