Revocable Living Trust

To avoid the detriments of the probate process, more and more people are turning to an estate-planning tool called a revocable living trust. Although both a will and living trust are used for estate planning purposes, the basic difference between the two is that the will does not take effect until death, while the trust is effective immediately and continues without interruption notwithstanding the grantor’s incapacity or death. Like a will, a revocable trust also can be structured to minimize taxes.

The basic structure of a revocable living trust starts with the person who creates a trust, who is called the “settlor” (or “grantor”). The settlor will determine what person will manage the trust. That person will then be known as the “trustee”. The settlor also determines who will ultimately receive or enjoy the assets in trust. Those people are called the “beneficiaries”. All these people, and other rules governing the trust, are written in a document prepared by the settlor. That document is called the “trust”.

The settlor then essentially places ownership of all or a portion of his/her assets into the hands of the trustee to manage them for the benefit of the beneficiary in conformity with the instructions stated in the trust. But as long as the settlor is alive and remains capable of managing his or her affairs, he or she also can be (and usually is) the trustee and also the beneficiary. What this means is that the settlor can enjoy his or her assets as if the trust had not even been created. The settlor can manage the assets and use them for his or her benefit throughout the settlor’s life. Then, when the settlor dies, the trust document (which was created with the settlor’s goals in mind) provides who becomes the trustee (or successor trustee) and who become the successor beneficiaries. If the settlor wants to provide for an outright gift at his or her death, it can be done. Alternatively, if the settlor is concerned about a child’s ability (or inability) to manage any inheritance, the trust can provide that the inheritance not pass immediately to the child but instead passes only when the child reaches certain milestones in life – such as obtaining a selected age or after earning a college degree.

An advantage with a revocable trust, as opposed to a will, is that the trust avoids the probate process. Thus, the revocable trust does not become a public record, unlike a will. Accordingly, the settlor’s wishes can be kept out of the public eye.

Another advantage is that, generally speaking, trusts are tougher to challenge than wills. Therefore, unhappy relatives have a much more difficult and expensive route to follow if they wish to overturn trust provisions since they are forced to bring litigation against the trustee.

Moreover, since a trust is revocable, the settlor may make any desired changes from time to time, including adding property to the trust, withdrawing property, changing the dispositions and even terminating the trust.

Yet another significant advantage with trusts is that they are usually designed with a goal of minimizing estate taxes. Therefore, more of the settlor’s assets actually pass to the intended beneficiary as opposed to going to the tax collector.

If you have further questions about the benefits of a revocable trust, contact Daniel Geraldi at (925) 236-0045.