What is a revocable living trust? Basically, a revocable living trust is an entity that is created during your lifetime to keep your property while you are alive and to transfer your property to beneficiaries upon your death.
A Revocable Living Trust Must be Funded with Property
By property, I mean assets such as real estate, bank accounts, and with a few exceptions generally anything with an ownership or title document. These assets must all be retitled in the name of the trustee. In other words, ownership of the assets is transferred from your name to the name of the trustee in his official capacity as trustee of your trust. If you are the trustee then you would transfer ownership to yourself as trustee. This can seem strange, but it is a necessary step in order to fund the trust. You still essentially own the assets within the trust and you can sell them if you choose.
A Revocable Living Trust has Three Parties
A revocable living trust has three parties: a settlor or grantor (person who establishes the trust), a trustee (person who manages the trust), and a beneficiary (person who benefits from the trust). Typically, these are all the same person. For example, John creates a trust and funds it with his assets. He names himself as trustee so he can manage the assets while he is alive and likewise enjoy the benefits of the assets during his lifetime. Upon his death, the trust assets are distributed by a successor trustee that John named in his trust to specific beneficiaries that John named as well.
A Revocable Living Trust is Flexible
One of the great things about a revocable living trust is that it is "revocable." This means that if you change your mind and for some reason you want all the property back in your name as an individual, you can revoke, change, or terminate the trust. A revocable living trust is very flexible. You have control. When you die, the revocable living trust becomes irrevocable because you are no longer here to terminate or otherwise make changes to the trust.
Advantages of a Revocable Living Trust
Why would anyone create a revocable living trust? Why not just manage and enjoy the benefits of the assets without going through the trouble of creating a trust? Why not just create a will? Doesn't a will control the transfer of property at your death just like a trust? Well, a revocable living trust provides certain benefits that you will not get without it.
A Revocable Living Trust Avoids Probate
One of the biggest advantages of having a revocable living trust is probate avoidance. Probate is the court process of distributing your property and paying your taxes and debts. It can be a costly and cumbersome process. It can cost thousands of dollars (attorney, court fees, appraisers, etc.) and take many months or longer to complete. Your beneficiaries will need to wait a long time to receive their shares of your estate. On the other hand, a revocable living trust avoids probate. When you die, your successor trustee can take steps to immediately transfer assets to your beneficiaries without the cost and delay of probate.
A Revocable Living Trust is Private
Another great advantage of a revocable living trust is that it is a private document. Since it avoids probate, your trust doesn't become part of the public record like a will does. This means that the terms of your trust and the transfer of property to your beneficiaries will remain private. The extent of your financial holdings will not be open for public scrutiny and your family conflict will not be aired for everyone to see.
A Revocable Living Trust Provides Incapacity Protection
Still another advantage of a revocable living trust is that it provides incapacity protection. If you become incapacitated and unable to manage your affairs, your successor trustee that you've selected and named in your trust takes over for you. Why is this important? Well, while you are incapacitated bills still need to be paid so that property is not repossessed. After you've regained capacity, it would be disheartening to discover that your credit is ruined, you don't have a place to live, and you don't have a car to take you to doctors' appointments.
Without a revocable living trust, someone would need to initiate a court proceeding to be able to manage your affairs. There are some disadvantages to this method. First, the proceeding is public record. Second, the person selected by the judge may not be someone you would have chosen if you had the chance. Lastly, it could be potentially embarrassing for your financial affairs and medical condition to be open to public scrutiny. A revocable living trust saves you the time, cost, delay, and possible embarrassment of a public conservatorship or guardianship proceeding.
A Revocable Living Trust Can Save You Time and Money
As mentioned earlier, a revocable living trust can save you the delay and cost of a public conservatorship or guardianship proceeding should you become incapacitated. It can also save you time and money when it comes to a public probate proceeding. Additionally, a revocable living trust can be combined with other specialty trusts that can reduce your tax bill. These types of trusts are outside of the scope of this article, but know that they exist. We've all heard the saying, "It takes money to make money." Well when it comes to revocable living trusts, "It takes money to save money." However, rest assured that the expense of creating a revocable living trust is often nominal when compared to the ultimate savings it provides in terms of time and money as well as the privacy it affords.
An Experienced Honolulu Estate Planning Law Firm
Contact our office today to get started with your revocable living trust.
This article is a service of the Law Office of Keoni Souza, LLC, an estate planning law firm in Honolulu, Hawaii. We don’t just draft documents; we ensure you make informed and empowered decisions about life and death, for yourself and the people you love. That's why we offer a Family Wealth Planning Session, ™ during which you will get more financially organized than you’ve ever been before, and make all the best choices for the people you love. You can begin by contacting our office today to schedule a Family Wealth Planning Session and mention this article to find out how to get this $750 session at no charge.
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