There are many reasons for considering the use of a Revocable Living Trust as part of your estate plan, which involves the creation and funding of a stand-alone trust agreement during your lifetime (a/k/a “inter vivos trust”) instead of creating trusts after your death by including trust provisions in your Will (a/k/a “testamentary trust”).
For those folks whose estate assets do not exceed the current Federal Death Tax/Estate Tax exemption of $5,430,000.00 per person, using a Revocable Living Trust for death tax/estate tax purposes is currently not a primary concern. If your estate assets DO exceed the current $5,430,000.00 per person estate tax exemption, the use of Irrevocable Trusts (e.g. Charitable Remainder Trusts, Life Insurance Trusts, Asset Protection Trusts, etc.) should most definitely be considered and those types of trusts will be discussed in another blog. So if your assets DO NOT exceed the current $5,430,000.00 per person estate tax exemption, why would you/should you consider using a Revocable Living Trust?
The most common reason for using a Revocable Living Trust is the avoidance of Ancillary Probate in other states where you own a second home or other real property [Beach Condo, Mountain Cabin, Time Share Interests, etc.]. By creating a Revocable Living Trust and transferring ownership of all real estate interests located in other states to the trustee of your trust, the trustee would have complete control over those assets upon your death and would not have to wait for probate proceedings to be conducted in both your state of residence and the state where the real property is located (the Ancillary Probate proceeding) in order to manage and ultimately sell or transfer ownership of those assets to your intended beneficiaries. Having your assets owned by your trustee avoids both the unnecessary delay and the unnecessary legal expense associated with multiple probate proceedings in different states.
The next most common reason for using a Revocable Living Trust is for Privacy Purposes. If you want to provide for the creation of trusts using particular assets for particular beneficiaries and/or you want the disbursements of assets to certain beneficiaries to be restricted for one reason or another (for example a spouse or an adult child who has difficulty managing money or who has or has had drug or alcohol addiction issues, one of several children who will receive an unequal distribution compared to their siblings, or a particular beneficiary who will be disinherited altogether), the identity of the assets [their nature and value], the intended beneficiaries, and any restricted disbursement provisions can be kept private in a Revocable Living Trust. Including such trust provisions in your Will would allow them to become a matter of public record if/when your Will is filed in probate court, thereby disclosing certain financial and personal information most folks would prefer to keep private.
I suggested in the title of this blog that Revocable Living Trusts are a practical estate planning tool for managing and transferring your assets because that is how my clients have described their personal experiences with such trusts, as either a trustor/creator of the trust, or as a successor trustee or trust beneficiary. One of the most practical effects of having a Revocable Living Trust in place is that in the event of your disability, your successor trustee can continue to manage the real property and all other assets held in trust during your disability and, in most cases, would be authorized to act on your behalf under the provisions of your trust agreement without the need to rely upon the authority granted under a financial Durable Power of Attorney. Nonetheless, you should still have a financial Durable Power of Attorney in place, as well as a Pour Over Will that directs your Executor to transfer any asset not already transferred to or made payable to trust prior to your death to the trustee, thereby making your trust/trustee the sole beneficiary under your Will. At your death, your Revocable Living Trust will dictate how your assets are managed and ultimately distributed - not your Will.
If you are interested in using a Revocable Living Trust for the reasons suggested above or for any other reason, you should consult an estate planning attorney to assist you in creating the trust agreement and to assist you in taking the necessary steps to fund the trust; i.e. getting deeds prepared and recorded, having beneficiary designations changed on certain assets, etc.. An experienced estate planning attorney will discuss including certain provisions in your trust agreement that will be of particular interest to you, such as clearly stating the purpose of the trust, the appointment of corporate fiduciaries, how much information about the assets held in trust should be disclosed to beneficiaries, and whether to include a “No Contest” clause, to name a few. Remember: it is a REVOCABLE Living Trust and can be modified and amended as often as you see fit and can be revoked at any time prior to your death, so you are free to reconsider and revise any and all provisions at any time. It is truly a very flexible and effective estate planning tool that you and your beneficiaries will be glad you considered.