What is a revocable living trust, or RLT? This is a common question that many people have. A revocable inter vivos trust, also known as an RLT, is a type of estate planning solution that can protect your assets and plan for your future. This blog post will discuss these trusts, how they work, and how you can benefit from them.
What Is a Revocable Living Trust?
Trusts are legal entities that hold assets, including title to property for a living person’s benefit. Assets titled in the name of the trust belong to the trust instrument. Often, individuals use an RLT as an alternative or supplement to a last will.
You can create a revocable trust, commonly referred to as an inter vivos trust or a living trust, during your lifetime. You can change the trust and add or remove assets at any time before your incapacity or death.
What is an Irrevocable Trust?
RLTs differ from irrevocable living trusts, which are difficult to alter after their creation. With an irrevocable living trust, only a few possible ways exist to remove assets or change the terms.
Sometimes, an irrevocable living trust will allow you to make limited changes permitted by the trust’s terms. Other ways to change an irrevocable trust include asking a court to order changes or shifting the trust’s assets into a new trust. Courts have granted access to such trusts before. However, accessing assets in a way not already established in the irrevocable trust is much more challenging.
However, with revocable living trusts, there is no need to worry that you can’t transfer assets or that your assets are inaccessible.
Who Benefits From an RLT?
The living person or charity who benefits from the trust but who does not have legal title to the money or property in the trust is called a beneficiary.
The individual who creates the trust decides how it will operate, and determines what property or funds to include in is the grantor (also called settlor or trustor).
The grantor also names a trustee in charge of managing and investing the assets held in the trust and distributing them to the trust beneficiary according to the instructions in the trust agreement.
Typically, the grantor names a successor trustee in the trust agreement who will manage the trust if the trust owner passes away, becomes incapacitated, or is otherwise unable to serve.
Acting as Grantor, Trustee, and Beneficiary of Your RLT
Often, the grantor of the RLT is both the initial trustee and primary beneficiary. You wear many hats as a grantor, trustee, and beneficiary of your RLT. You bear the responsibility to:
- Create the trust and provide the funds or property
- Manage, invest, and control the property and money owned by the trust
- Distribute the trust funds to yourself as desired.
While you are alive and well, the tax identification number of an RLT is your own social security number. Any income earned by the trust is taxed as your personal income.
Can You Change an RLT While Living?
You can alter your RLT through amendment, restatement, or revocation if circumstances change.
One common way to manage a change is to have your attorney help you draw up a trust amendment. The properly drafted and executed trust amendment is then attached to the original trust document.
An amendment may be appropriate for minor changes or deletions, such as replacing a successor trustee. After a grantor dies, the successor trustee manages the trust.
If more significant changes are needed, such as changing beneficiaries of the trust, or if the trust has already been amended multiple times, your estate planning attorney can help you create a document called a restatement of trust.
A restatement allows you to rewrite the entire original trust agreement, incorporating any necessary changes instead of revoking the original trust and creating and transferring assets to an entirely new trust.
There are circumstances in that neither an amendment nor a restatement work. In this case, you can revoke the trust. A revocation may be warranted if a significant change occurs, such as a divorce or a beneficiary’s death. A revocation involves dissolving the trust entirely and transferring the trust assets. You can either transfer assets back to yourself or to another trust.
If your attorney helps you amend an RLT, they will create a written document. They will ensure that it is signed by the grantor and trustee and has a title showing it is an amendment to the trust. The document will set forth the trust’s name, the date, and the trustee’s name. It will also mention the portion of the trust document that allows amendments to be made and identify the part of the trust that you want changed, deleted, or added.
If there is more than one grantor and the changes are made by fewer than all of them, notice should be provided to the grantors who do not participate in the changes.
What Goals Can an RLT Accomplish?
Avoiding Probate
When you pass away, none of the assets properly titled in the trust will go through a long and potentially expensive probate process. Probate can delay a beneficiary’s access to trust assets for months or even years. Even if you name an executor in your will, the estate will go through court management to settle.
However, with an RLT, your estate can avoid probate court. You can even create a testamentary RLT that only comes into existence at your death to avoid probate for your family.
With a trust, your assets never go through a court process. Instead, your trustee manages the estate and distribution of assets to your beneficiaries.
In addition, your trustee distributes trust assets privately. They do not become part of public records. All probate files, including wills, asset inventories, and distribution reports, are open for any member of the public to review.
Protect your family’s privacy with an RLT and a pour-over will to include all assets in your RLT. Don’t send your family to a courtroom to settle your estate.
Protecting Inheritances
You can include provisions in your RLT that will help protect trust assets intended to benefit the next generation. An RLT can accomplish the following goals:
- Prevent vulnerability to creditors
- Ensure beneficiaries do not spend assets too quickly
- Prevent the loss of assets in a divorce
- Prevent the loss of assets as a result of other life events your beneficiaries may experience, such as bankruptcy or lawsuit judgments.
Planning for Incapacity
Although an RLT allows you to retain control over your assets, it’s crucial to also plan for what will happen if you cannot make decisions in the future.
In an RLT, you can authorize a co-trustee or a successor trustee to manage the trust property if you become incapacitated due to an illness, accident, or incapacity. You can name a surviving spouse or another trusted person as the one who will manage and hold assets if you become incapacitated.
Without a trust, your family members are forced to rely on a financial power of attorney or wait for court dates to ask for legal authority to manage your finances.
Our Experienced Estate Planning Attorneys Can Help
An RLT has many benefits as you create an estate plan, including enabling you to continue managing your assets while living and providing protections for your beneficiaries after you pass away.
As experienced estate planning attorneys, we can help you plan for the future by establishing a new RLT or changing the terms of an existing one. Get in touch today to discuss how an RLT could help in your unique situation, or talk with us about any of your other estate planning needs.