Revocable living trusts aren’t for everyone, but they are an important part of most high-quality estate plans. Here are the main reasons revocable living trusts (RLTs) are used, according to a recent article from Entrepreneur:
To avoid probate. Probate is the court process by which a decedent’s assets are distributed to heirs according to his or her last will and testament. Most people prefer to avoid probate because it can be long and expensive, and private information becomes public.
With a RLT in place, the decedent’s assets are distributed to beneficiaries by an appointed trustee, according to the terms of the trust. The process takes place privately, outside of court.
To implement special provisions for children. RLTs allow parents and grandparents to get very specific when it comes to leaving inheritances to children and grandchildren. It is possible to require the trustee to hold on to an inheritance until a beneficiary reaches a certain age, or set up a joint trust for minor children until they reach the age of 18.
Restrictions can also be placed on inheritances, such as if drug or alcohol abuse is going on. Children and grandchildren can also be cut out of estate plans more definitively in a RLT than in a traditional will. Finally, RLTs can be very beneficial for children who have special needs for managing their inheritances.
To minimize estate tax for married couples. While RLTs typically cannot result in significant income and estate tax savings they may be helpful for married couples who form a a marital bypass trust. This is a special kind of trust that allows a married couple to double what they can leave to their heirs without estate tax by using both personal exemptions.
Keep in mind that a RLT doesn’t automatically take the place of probate. In order to do that, it must be funded. There are four main assets that RLT’s typically hold title to, including real estate, entities such as corporations or LLCs, investment accounts and life insurance policies.
Talk to an experienced estate planning lawyer for more information on setting up a RLT.