With revocable trusts, the devil is in the details.

Wealth Solutions

With revocable trusts, the devil is in the details.

Remember these five important things about living trusts

There are five important things to know about living trusts – also known as revocable trusts or inter vivos trusts – for trustees to place their assets while living and help their family members avoid the probate process.

When you put property into a living trust, the trust becomes its owner, which is why you must transfer title to the property from your own name to that of the trust. Revocable living trusts (RLTs) help estate planning attorneys design custom plans for unique client situations. Note, the information here is not meant to replace the thorough and confidential counsel of an estate planning attorney.

A three-party agreement: the trust maker, trustee and beneficiary

The "revocable" in RLT means that the trust maker (also known as the grantor, settlor or trustor) reserves the right to change any trust provisions as long as the trust maker is alive and has legal capacity to make decisions. Once he or she passes or no longer has legal capacity, then the RLT becomes irrevocable.

Avoiding “living probate”

One of the major benefits of the RLT is the uninterrupted management of trust assets should the trust maker or beneficiary lose legal capacity. The authority of a trustee over trust assets is greater than that of an agent acting under a durable power of attorney over assets still titled in the name of someone who is incapacitated.

Avoiding ''death probate''

Because the estate distribution plan of the trust maker remains private, court costs are eliminated and the delays often associated with probate are avoided. Of course, the degree to which these benefits are realized may vary depending on the state where the trust maker was a legal resident at the time of death. Owning real estate in more than one state could subject an individual to probate in each respective state, which is yet another advantage when real estate is titled to the RLT.

Funding fundamentals

The "titling" of assets is truly the "secret sauce" when it comes to estate planning. Because the key to the success (or failure) of any estate plan, whether passing through probate under a last will and testament or avoiding probate with an RLT, hinges on knowing what is owned, how it is titled, where it is located and its value – and the people who know it best are no longer alive or no longer have legal capacity. As a result, up-to-date record keeping and careful asset titling are essential.

Choosing trustees

Along with asset "titling," the selection of your successor trustees will determine whether your RLT is successful. There are really three basic options when it comes to filling this crucial role:

  1. Go with trusted family members or friends. Likely they know the strengths and weaknesses of your beneficiaries. Unfortunately, they may be busy with their own lives, financial and otherwise. Also, they may be unable to say "no" to the supplications of irresponsible trust beneficiaries.
  2. Professional trustees can be a common choice.
  3. Consider combining the previous options for the best of both. Under a co-trustee approach, clients can appoint a family member (or friend) trustee who understands the strengths and weaknesses of your beneficiaries, while a professional trustee is chosen and is given the power to say "no" to irresponsible distributions. In the process, personal relationships are preserved and beneficiaries are protected.


Final thoughts

Even basic RLT planning can be complex. Consider an estate planning attorney carefully. Sadly, much of what passes for estate planning today is little more than word processing. Someone asks a few questions and then fits you into their pre-defined box. Don’t let clients settle for less than thoughtful, personalized planning. 

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