The Increasing Popularity of The Revocable Living Trust.
The Revocable Living Trust is sometimes called an Inter Vivos Trust, meaning, it is created, funded, and functional during life. Although created during life, it lasts beyond the death of its Maker for as long as the Maker directs, and it makes final distribution of assets at the Maker’s death, or can last beyond death if the Maker so desires. Many jointly owned living trusts survive until the last spouse dies, and distribution is made by the Successor Trustee as dictated in the trust. However, many trusts continue for a period after the last death to accomplish continuing desires of the Makers.
The Revocable Living Trust is increasingly selected by clients as a favorable alternative to the Will and probate process in developing an estate plan, for many of the following reasons:
- Will Substitute. The Living Trust acts as a will substitute and is recognized as such by the IRS and our Court system. It takes the place of the bequests and distributions normally made in a Will, and acts as an immediate tool covering the disability of the Maker(s), and, can continue beyond the Maker’s death. Your new Will becomes a “Pour-over Will,” transferring any asset which was not transferred into your trust during your life.
- It avoids probate. The assets you own at your death and how those assets are distributed are not made public, as in probate. Further, it should avoid the necessity of going into a Kentucky Probate Court with its attendant costs, including attorney fees (often thousands of dollars more expensive than the cost of setting up a Trust). While your successor trustee may need limited legal advice upon the death of the last Maker to die, there is seldom a need for in-depth legal involvement. There is no forced transfer of assets, court required accountings, or fixed time limitations imposed upon the family, as is often required with Probate.
- Holds legal title to your assets during life, and distributes or continues to hold certain assets after your death as you may direct, without the dictates of a will or the intervention of the Probate Court.
- It is created during life, in contrast to the testamentary trust, which is created at death, by a Will.
- It is easily revoked, cancelled or undone at any time during the Maker’s life. A testamentary trust can be changed only if you change your Will; which must be witnessed by two people and notarized by a third.
- It owns your property during life. With a revocable trust, the ownership of all assets undergoes a subtle change: you retain beneficial ownership, while the trust holds “legal” title. It exists as an independent legal entity, with you retaining control and flexibility. The Maker who dies does not have an “ownership” in property because his property is now owned by the trust. Thus, there is no individual property to pass for purposes of probate or descent and distribution.
- It Extends Beyond Death. A trust does not die with its Maker, a Trustee, or a Beneficiary. It “dies” or ceases to exist only when it has accomplished all of its purposes. The Maker normally provides for its termination upon the death of the surviving spouse, although many trusts are created to continue for a period of time after the last death, to accomplish some specific purpose. Some examples include continued ownership of vacation property or a family owned farm for use of multiple heirs, or directions not to sell or distribute a certain asset until some condition precedent is met. This independent status creates important planning advantages for the longer term, especially the term between the first death and the second death of married couple.
- It affords protection during incapacity. Although a Power of Attorney may also do this, the Alternate Trustee may act to manage the trust investments, pay household bills, take care of taxes, and arrange health services without involved paperwork. A living trust may also eliminate the need for a court appointed conservator in the event of mental disability.
- Protects your Children in the event of additional marriages. One of the most beneficial aspects of a Trust is that it can be drafted in a way that would preserve a Maker’s assets for their children in the event of death and a remarriage by the surviving spouse. This consideration is unavoidable for married millennials and young families, who want to ensure their portion of assets are ultimately distributed to their children, and not to their surviving spouse’s new spouse and children.
- It is unsupervised, both during life and at death. The Court becomes involved only when it is petitioned to get involved by some disgruntled beneficiary, which costs that beneficiary time and money in attorney fees. This aspect may not be as appealing to every family situation, and is always a consideration when deciding the best estate plan to meet your needs.
- Does not affect taxes. The living trust requires no additional income tax returns or reporting, during the life of the Maker(s). Although assets are held in the trust, the trust is not required to get a tax identification number or to report income or expenses to the federal or state taxing authorities. The trust is a “disregarded entity” for tax purposes (IRC Reg. 301.7701.3(f)). You do not change social security numbers on any accounts, although the legal title or style of accounts to be transferred into trust does change.
- The Maker retains complete control. It does not restrict handling of any asset during life. You continue to buy, sell, collect interest and rent, make gifts, and manage your assets. Only now you do it as a Trustee. You maintain complete control, including the absolute right to revoke or amend the trust and retake the assets at any time.
- Eliminates statutory requirements of a will. The trust does not require two (2) witnesses and a notary to its execution, or to changes (“codicils”). Trusts are harder to attack, because the requirements of testamentary intent, mental condition, and undue influence surrounding a will’s validity do not apply.
As you can see, there are multiple factors to consider when planning for your estate. A Trust is an affordable alternative to probate, and is increasingly popular across all generations, including millennials, for a multitude of reasons. Our experienced attorneys are equipped to walk alongside you and your family in assessing the best estate plan to fit your needs, no matter what stage of life you are in. Let us help you plan for your and your family’s future through the legal tools at your disposal, such as a Living Revocable Trust.
Call us at 502-515-0915 for a free consultation.