Updated: Oct 4
I'm Debie Stewart and I want to give you some information about revocable trusts.
You might find yourself wondering what kind of trust you need. There are only five types of trusts: (i) Living; (ii) Testamentary; (iii) Revocable; (iv) Irrevocable; and (v) Funded or Unfunded. Beyond that there are multiple other kinds of trust funds. For now, I want to focus on Revocable Trusts.
A Revocable Trust, also known as Revocable Living Trust, it is created during your lifetime and determines how your assets will be handled after you depart this life or upon incapacitation. It is a way to move ownership of property and assets into a Trust for later distribution to your Trust’s Beneficiaries. If you become incapacitated, it sets out a plan for your Trustee to take over and manage your assets without going to court or getting an appointed conservator.
In some states, like Utah, you can be both the Trustor and the Trustee. As stated above, it’s recommended that you have an additional co-Trustee in case you are unable to manage the Trust yourself. Because you can be the Grantor and the Trustee, you maintain full control of the assets and property in the Trust. You can sell, spend or give away the assets. You can even remove Beneficiaries with no hassle. A Revocable Trust is changeable and flexible.
An Irrevocable Trust, as the name states, an Irrevocable Trust cannot be changed or terminated without the permission of the Beneficiary. When the Trustor creates it, they effectively transfer their ownership of their assets into the Trust, meaning that the assets belong to the Beneficiaries and are no longer theirs. Irrevocable Trusts are generally created for estate and tax considerations. Since they remove ownership from the Trustor, the Trustor can no longer be taxed for the Trust’s assets.
To Fund Or Not To Fund?
Revocable Trust’s assets range from real estate, stocks and bonds, and bank accounts. In order to fund the Revocable Trust, you will need to retitle everything into the name of the Trust. The Trust name is usually something like “[your name and co-trustee’s name] as Trustees of [trust name] Revocable Trust created by agreement dated [date].” This means retitling cars, deeds to homes, and any other physical property you own. You may be able to rename your bank account, but it might require opening a new bank account. It is also issuing new investment certificates and updating the beneficiaries to the Revocable Trust. If you intend to refinance your home or take out a home loan, do so before deeding the property to your Revocable Trust. If you don’t and later decide to do so, banks will want you to transfer the property out of the Revocable Trust and back to you personally before executing any new mortgage documents.
You can choose not to fund your Revocable Trust and create a “pour-over” will. Then upon your death, all of the unallocated assets will transfer to the trust. We will go into details about Wills in later blogs. But by not funding the Revocable Trust, upon your death, your estate will have to be probated. There is also less protection if you become incapacitated. So, it’s highly recommended to go ahead and fund the Revocable Trust now rather than upon your death.
The benefit of a Revocable Trust is the avoidance of probate. Probate was discussed by my colleague, Randa Vieira. As a refresher, it’s a court proceeding where all your assets are distributed. Probate is slow and time consuming. By having a Revocable Trust, your successor Trustee will be able to distribute the assets without waiting on the court. This is a quick and more affordable route. Also, it provides more privacy. Wills and their required transactions are entered into the public record. Anyone can see what you put in your will, who your beneficiaries are and what they are receiving. No one can search the public records for a trust.
One downside to a Revocable Trust is because you retain ownership of the assets, you will pay taxes on a Revocable Trust. This can include income taxes, inheritance taxes, or estate taxes. So any income earned from the assets within the Revocable Trust will go on your own income return.
Revocable Trust, At Your Service
A Revocable Trust will act as your will and the property will be distributed to the beneficiaries as directed by the Trust Agreement. Real quick, a Trust Agreement contains instructions for the trustee. It describes (i) how the trust assets are to be invested and managed; (ii) who is to receive income from the trust; and (iii) what happens to the trust if you become incompetent and when you depart this life. The Trustee can only do what the Trust Agreement provides. We will go into more details about a Trust Agreement in later blogs, but here are some things to think about regarding the Revocable Trust and the Trust Agreement:
At what point should your successor Trustee take over the Revocable Trust? When you are incapacitated? Upon your death? When you decide to resign as the Trustee?
What exactly is incapacitation? What does it involve? Where do you draw the line?
What will the Revocable Trust be allowed to invest in? Oil, gold, bitcoins?
Are you okay with the Revocable Trust paying the debts of your estate? Mortgage, cable, internet?
If there is a gap in the absence of Trustees, who appoints the new trustee? Should they have certain qualifications?
Should the beneficiaries of the Revocable Trust receive an accounting of the trust?
If a beneficiary is under age 18, do you want the distribution of the trust to be made to them, or to someone on their behalf?
Do you want the trust to last for a certain period of time, such that the beneficiaries reach a certain age?
Exactly what powers should your trustees have?
"The need (for an estate plan) is always there, it’s just that the motivation is there right now,” says Chas Rampenthal, general counsel for online law resource Legal Zoom.
What We Can Do For You
While the upfront hassle of a Revocable Trust can be complex, the work you do now will save heartache and headache once you leave this life or if you become incapacitated. There are three basic steps in creating a Revocable Trust. (i) Execute a Trust Agreement naming either a person or a corporation as trustee to administer the trust; (ii) determine who you want to be the beneficiary of the trust; and (iii) fund the trust. Call me or email me, 646.592.5311 or Debie@SKVLegal.com to discuss setting up your Revocable Trust.