Preparing an estate plan can be challenging, especially for wealthy families. A revocable trust is one of the most popular tools to protect assets. It can ensure your wishes are followed after you pass away.
But what exactly is a revocable trust? What benefits does it offer to families, including those of high net worth? How does it work, and what considerations should be considered when setting up a revocable trust? Let’s dive in so you can make an informed decision about including a revocable trust in your estate plan.
What is a Revocable Living Trust?
A revocable trust is a legal tool that allows you to manage and distribute your assets during your lifetime and after death. It is a legal instrument that creates its own entity with rules, regulations, and provisions. The person who creates the trust is known as the grantor or settlor.
One major advantage of using a trust is flexibility. It can be modified anytime during a grantor’s lifetime. This means if there are changes in life circumstances or needs, then updates can be made without creating an entirely new document.
It is a tool that allows a person or family to control their assets while also providing for the transfer or management of those assets at death. Learn the advantages of establishing a revocable trust so your family can manage their wealth for generations.
Benefits of a Revocable Living Trust
There are a variety of advantages to including a trust as part of an overall estate plan, especially for families who want to protect and manage their assets during incapacity or after death.
One major benefit is avoiding probate. A will is subject to probate and can’t manage assets for young children or for a person with special needs. Probate records are also public, risking your family’s privacy. Finally, probate can be expensive and lengthy. With a trust, beneficiaries receive their inheritance quickly.
Another advantage may be protection against creditors or lawsuits. When assets are held in a revocable trust, they cannot be seized by creditors or taken away during litigation proceedings. The assurance of not having the wealth you’ve built over your lifetime subject to financial or legal liabilities can be a great comfort.
Often there may be tax benefits. High net-worth families may have estate taxes due at death. Assets held within a properly structured revocable trust may not be subject to federal estate tax when passed on to heirs after death, resulting in significant savings for those with large estates and assets.
One of the best benefits is that a revocable trust allows flexibility and control over how assets are distributed after death. Instead of a single distribution to heirs, or worse, having your estate subjected to distribution according to state law, you and your family maintain control.
By providing specific instructions about who gets what and when it should happen, you can ensure your wishes are carried out even after you’re gone and protect your estate from family disputes over inheritances down the line.
How Does a Revocable Living Trust Work?
Establishing a trust creates an entity that allows the grantor to transfer ownership of assets into the trust’s ownership while retaining control over them during their lifetime. Upon the grantor’s death, a named trustee assumes control and administers the distribution of assets as specified in the trust.
Once you create a trust, you are considered the Grantor, or Settlor. Once established, you’ll fund your trust. Funding includes changing the name of assets into the name of the trust. The trust will hold and manage your assets on your behalf. Funding is important because your trust will not work if you don’t fund it.
During your lifetime, you can move your assets in or out of the trust as your needs change. It also will outline your specific wishes and instructions for how your assets should be managed or controlled. For example, if you wanted your children to receive your house upon death but only after they graduated college, this would be stated in your trust agreement.
Any and all assets that have been transferred to the trust will remain under its direction until the grantor’s incapacity or death. Upon the Grantor’s death, changes to the trust can no longer be made. It becomes the trustee’s responsibility to follow the trust’s instructions to distribute or manage assets on behalf of the designated beneficiaries. Given a trustee’s responsibilities, naming a person for this role is an important consideration. Typically a grantor will turn to a close family member or friend.
A Trustee will also take over management if you cannot act due to illness or injury. The trustee has legal authority and responsibility for carrying out these tasks on behalf of you (the grantor) and those named beneficiaries. Trustees are often family members such as spouses, siblings, parents, etc., but they can also be professional advisors like attorneys or financial planners specializing in trusts and estate law.
A Revocable Trust is a Valuable Tool for Wealth Planning
It can protect and benefit your loved ones after you’re gone. It protects your family’s privacy by keeping your estate out of probate court and the public record.
It can provide for a second spouse and fulfill your charitable wishes after your death. A trust is the perfect legal tool to provide for your family for generations.
Trust Planning Considerations
As you prepare for a consultation with an estate planning attorney, there are several points of consideration.
First, what is your purpose in considering a trust? Often clients have wealth and assets they want to protect long-term. A trust can provide for young children through adulthood. It can provide for a second spouse while still providing an inheritance to our family upon death. It can direct long-term charitable giving to your favorite cause. And it can protect assets for a disabled or spendthrift family member.
An often difficult consideration is who to choose as a trustee. Perhaps a person with expertise in managing finances is best suited. Often a close and trusted family member is a better choice. This is often a difficult decision that requires much thought. No single choice is perfect for every family dynamic.
Next, it’s important to determine which assets will be used to fund the trust. How will they be distributed to beneficiaries or held to be protected from creditors or other potential claimants? Some assets may be subject to negative tax treatment when held by a trust instead of an individual. Commonly bank accounts and real property are held in trust. Our experienced team partners with tax specialists, accountants, and advisors to guide you through the process.
Schedule Your Planning Consultation Today
A revocable living trust offers an expedient and pliable way for people to control their possessions during life and the power to decide how those assets are divided upon death. A revocable living trust can help minimize estate taxes and avoid probate, and prevent potential family conflicts.
It is a powerful estate planning tool for families who want to manage wealth across generations. It ensures your family’s needs and goals are met even after death. With thoughtful preparation, setting up a revocable trust can help secure your family’s future and provide peace of mind knowing you have taken steps to protect your assets against the unexpected.
Take control of your future today by contacting the Legacy Law Centers team for a complimentary consultation. We help Loudoun County families and their loved ones prepare for the future through sound legal planning. Give us a call at (571) 200-5559 to learn how we can help you.