Revocable Living Trusts

A Revocable Living Trust or Revocable Inter Vivos Trust is a contractual arrangement where a person (you) transfers his/her assets to a person known as the Trustee who agrees to own, administer and distribute the assets to the designated beneficiaries according to the written agreement known as the Trust.  Usually, the transferor (grantor and settlor are other names used) is the Trustee for him or herself during his or her lifetime.  When it is done in this way, it permits total control over the assets by the transferor during his or her lifetime.

The Trust Agreement is essentially a “bucket” into which you place your assets while retaining all control over them.  You retain the right to change the terms of the agreement or revoke it all together.  It does not become irrevocable until your death.  All income tax consequences “pass-through” and you use your own social security number.  No special tax return is required for such a “Grantor Trust.”

The reasons for establishing a Revocable Living Trust are many:

∙ Avoid Probate: Assets which you have transferred and which are held in the name of the Trustee (you as the trustee of your trust) are not subject to probate upon your death.  This assists you and your beneficiaries in a number of ways.

∙ Avoid the expense and delay that probate proceedings cause to your beneficiaries/heirs.

∙ Protect your privacy.  You would not discuss your savings account balance with your neighbors today, yet during probate, your financial details become a matter of public record.

∙ Minimize Estate Taxes.  Depending on your economic circumstances, a properly drafted revocable trust can save significant estate taxes which is important given the maximum rates of 55%.

∙ Optimize the marital deduction and the unified credit for tax purposes. Depending on the size of your estate, it will be important for you to assure that your unified credit deduction is not lost.

∙ Avoid Conservatorship Proceedings.  A trust may provide that the successor trustee can manage the assets and provide for the care of the grantor when the grantor becomes incapacitated or incompetent.

∙ Ruling from the grave.  A Trust allows the Grantor to maintain influence over the use and investment of the wealth that he or she created.

∙ Protect for special circumstances.  Second marriages and new families provide unique circumstances for which planning is necessary to protect them and the first family.

A properly drafted and properly funded Revocable Living Trust can allow you to retain control during your lifetime over your assets while providing for administration of those assets during your disability and at death.  It can optimize your estate tax deductions and credits.