What is a Revocable Living Trust?

The majority of people use a will to provide instructions concerning the distribution of their property after death.

But it is not the only estate planning tool available for such purposes. Some people opt to go in a different direction such as the drafting of a Revocable Living Trust (RLT).

All trusts revolve around three parties:

  1. the grantor (the person creating the trust and providing the assets to fund it),
  2. the trustee or trustees (who manage the trust assets),
  3. and the beneficiary or beneficiaries (those named to benefit from or utilize trust assets).

In a trust, a designated trustee becomes responsible for managing the property and other assets owned by the trust.

One of the most misunderstood estate planning documents is a Revocable Living Trust (RTL).

A Living Trust is one established while the grantor is still alive. A Revocable Trust means the grantor can amend the documents as long as they are mentally competent.

During the grantor’s lifetime, he or she creates a Trust and then must transfer ownership of their assets into it. These assets are then managed by the named grantee, and upon the grantor’s death, pass according to the directions contained within the document. However, many people do not need or want this form of estate planning.

When is a Revocable Living Trust beneficial?

An RLT can potentially:

  • Eliminate or minimize probate,
  • Avoid having an estate in two or more states, and
  • Allow for the orderly administration of investments.

In certain situations, a living trust may be a useful estate planning option.

  • People owning real property in multiple states,
  • anticipating a contested will,
  • or who are just looking to have another person manage their assets can use RTLs to great effect.

However, in the majority of cases, the costs incurred creating and administering a living trust outweigh any potential benefits or savings.

RLTs are useful tools in certain, but not all situations.

If properly drafted and if the person’s assets are transferred into the trust they eliminate the need for an estate. A trust can be written so that assets will be distributed immediately upon your death or portioned out over specific periods of time and in specific amounts.

When necessary, revocable living trusts can also contain tax planning.

But that does not mean these documents are the answer to all problems. Many mistakenly believe that a Revocable Living Trust will:

  • completely eliminate estate taxes,
  • cost less than a will,
  • can be used to ensure privacy,
  • or can be used to avoid creditors or nursing homes.

All of these beliefs can be at least partially false in certain circumstances.

Anyone considering creating an RLT should make sure that he or she has all available information about various estate planning options. The best way to ensure you are fully informed is consulting with a licensed Maryland attorney experienced in these matters.

Frequently Asked Questions:

Does a Revocable Living Trust prevent litigation?

No. This document normally does not preempt any court proceeding.

Does a Revocable Living Trust shelter or otherwise preserve assets from litigation or Medical Assistance?

No. Your Trust can be revoked at any time while you are alive. Therefore, the assets in your RLT are subject to your creditors and available to pay for the cost of nursing home care.

Does a Revocable Living Trust automatically prevent the necessity to open an estate?

No, you must re-title your assets into your Trust for them to avoid passing through probate. A failure to do so could mean those assets become part of your estate.

Is a Revocable Living Trust inexpensive?

No. The preparation and administration of this type of trust is often an involved and expensive process.

Do you still need other estate planning documents?

Yes. A Revocable Living Trust may not include all of your assets and does not contain medical instructions, nor grant the authorities found in a Power of Attorney.

Does a Revocable Living Trust have income tax advantages?

No. Taxes are paid on the income generated by the assets in the Trust and that income is included on your personal tax returns.

Does a Revocable Living Trust have estate tax advantages?

No. The assets in the Trust are included in the calculation for estate tax purposes.

Is a Revocable Living Trust the exclusive method to avoid probate?

No. You may name beneficiaries on your assets. This includes:

  • TOD – Transfer on Death for stock accounts,
  • POD – Payable on Death for bank accounts, and
  • LED – Life Estate Deeds for real property.

These designations allow assets to pass directly to the person(s) of your choice upon your death, bypassing probate.

Is a Revocable Living Trust the exclusive method to avoid a guardianship?

No. Financial Powers of Attorney allow your Attorney-In-Fact (named agent) to manage your financial affairs and property. POA’s are usually less expensive to create and administer as well as normally less cumbersome than RLTs.

In summation, although a useful estate planning document in specific situations, a Revocable Living Trust is not an estate/probate cure-all.

We invite you for a consultation about Revocable Living Trusts or other estate planning needs. Get started today »

Estate planning is a gift to your loved ones!