This article is Part 1 in a series that explores the various types of trusts that may benefit you. Today’s topic is revocable, or living, trusts.

When it comes to control, protection and privacy, there is nothing better than a revocable trust as the centerpiece of your estate plan.

Benefit 1: You Can Drive It Today

The RLT is flexible and designed to adjust to changes in your family, your finances, or the law. It gives you the advantage of creating it today, so it is legally in existence during your lifetime.

Benefit 2: Control

Because the RLT is revocable, you can change anything in it at any time.  This gives you the first layer of control.

The second layer comes from the structure of the trust. This is the “secret sauce” and why it is so popular. The RLT becomes the legal alter ego for you. You create the trust and thus become the Trustmaker.

Once established, you transfer assets into it, and the Trust legally owns the assets transferred into it. This is the key. Since you are the Trustmaker, you will also name yourself as the Trustee, (in most cases). You are the creator and the Trustee in control of your trust, and you create the “instructions” in the trust that must be followed.

A third layer of control is that an RLT can be written to stipulate how and when assets are disbursed, to protect heirs from being burdened with too much financial responsibility too soon, you can state how much each beneficiary should receive and when.

Benefit 3: Picking Out Who Is in Charge in Case of Death or Disability

In the document, you name who your Successor Trustee will be when you pass away or become mentally incapacitated. While alive and well, you as Trustee manage assets in the trust. But, in preparation for death or incapacity, you need to name a successor (and usually at least one additional backup) in the RLT.

Upon the Trustmaker’s death or incapacity, the trust converts from revocable to irrevocable. This is a major benefit from a control perspective. When you die or become incapacitated, your instructions in the trust can’t be amended by others. This is a key element to the RLT’s popularity from a planning perspective.

Benefit 4: No Trust Tax Rates

The RLT is recognized by the IRS as a “Grantor” trust for tax purposes. This means that the trust is ignored for income tax purposes and the Trustmaker is taxed as if the trust doesn’t exist.

Benefit 5: No Probate

Probate is expensive and time consuming in most states.  The RLT (if properly funded and updated) is a private document that avoids probate court. In contrast, a will must be filed with a probate court as a public document.

The trust assets can pass to your beneficiaries more quickly and cost effectively.  This is a major benefit for parents of young children.

Benefit 6: Some Creditor and Divorce Protection

Keeping assets away from creditors and legal judgments against the Trustmaker and beneficiaries is another way the RLT can protect assets; a will can’t do this. Including language in the trust that minimizes or eliminates federal or state estate taxes helps beneficiaries legally receive as much as they can.

In general, when you die, assets inside the trust are not considered marital property, meaning they aren’t subject to division in a divorce settlement if your surviving spouse remarries and later divorces or if another beneficiary, such as a child or grandchild, gets divorced. (This varies by state, however.)

If your surviving spouse remarries, or if you remarry after a divorce, a revocable trust can help ensure that heirs from the first marriage are treated fairly.

A Few Caveats

You must be diligent in transferring ownership of assets to the trust. Any accounts, property, shares of interest in a business, stocks or bonds not included in the trust are subject to probate. Probate is far more expensive, complicated and time-consuming than most people can comprehend.

Many Americans mistakenly believe that a simple will is all they need to protect their final wishes and pass on their belongings.

We disagree . Often, a will isn’t nearly enough planning for anyone – even for those who remained single and childless. If you own property, have a business, or stand to inherit assets from someone else, we strongly encourage you to talk to an estate planning attorney about the protections that a trust provides now and for the future.

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