REVOCABLE LIVING TRUST FAQ
This revocable living trust question and answer page addresses the most frequently asked questions regarding revocable living trusts. Refer to the links on the right for additional information not contained herein.
What is a revocable living trust?
A revocable living trust is an intangible legal entity that comes into existence upon the execution of a Declaration of Trust. The Declaration of Trust "declares" the provisions of the living trust as well as procedures and beneficiaries. Once the Declaration of Trust is executed, the trust exists. The person in charge of and authorized to act on behalf of the living trust is referred to as the trustee. Trustees also manage the trust on behalf of the beneficiaries. You, as grantor, should be the trustee of the trust and during your lifetime, the beneficiary of all trust assets. Only after your death do the trust beneficiaries named in the Declaration of Trust have rights to the trust property. The grantor can revoke the trust at anytime during his or her lifetime. Upon death, the trust becomes irrevocable.
What is the difference between a last will and testament and a revocable living trust?
A last will and testament provides instruction on how your estate will be divided after your death and involves a timely and sometimes expensive court process called probate. A living trust benefits the grantor during their lifetime and allows the property placed within the trust to avoid probate after their death.
What if I mistakenly leave the same property to different people, one in my living trust and the other in my last will and testament?
The living trust takes precedence over the will so the person in the living trust would receive the property. In practice this should not happen since a Pour-over Will would be executed simultaneously with the living trust. The only beneficiary of a Pour-over Will is the revocable living trust. Of course, upon execution of the Pour-over Will all previous last will and testaments are rescinded.
What are the benefits of a revocable living trust?
A living trust avoids probate and is not subject to court supervision. Trust property passes quickly to the beneficiaries. Privacy.
Do I need a lawyer to create my revocable living trust?
No. We provide easy to use, comprehensive living trust forms with instructions and a completed example. However, if you have intricate business holdings or have tax concerns you should consult a local attorney or tax professional.
Will my living trust remain legal if I move to another state?
Yes, living trusts are legal in every state and all states recognize trusts based on the laws of another state. Your living trust will specify the state laws governing it.
If I become incompetent or ill, who will manage my living trust?
The successor trustee takes over and manages the trust during a period of incapacity.
Do I need a Last Will and Testament in addition to a Living Trust?
A Will is not legally required but a Pour-over Will is recommended in conjunction with a living trust. Though most of your property will be in your trust there will certainly be items such as furniture, incidentals, bank accounts, clothing, etc., that will not be mentioned in the trust. A Pour-over Will is used as a "catch-all" to transfer into the living trust all property not specifically transferred into the trust prior to the grantor's death. Without the Pour-over Will anything not specifically in the living trust prior to death will need to be probated.
Probate is the legal process by which assets are transferred to the beneficiaries listed in a last will and testament or, when there is no last will, as dictated by law. While a living trust enables private transfer of assets, probate can tie up assets for an extended period of time, a minimum of six months. Unlike assets in a living trust, assets subject to probate are public knowledge and come under the scrutiny of the court. For assets not in the living trust at the time of death, use a Pour-over Will to transfer them into the trust. A Pour-over Will is used to transfer or "pour" into the living trust all property not specifically transferred into the trust prior to the grantor's death. A Pour-over Will requires a probate proceeding to transfer the property to the living trust, however, in many states, a small estate procedure can be used in lieu of probate if the property outside of the trust is valued at less than $100,000.
What are my options for a living trust, i.e., what configuration do I need?
If you are a single individual, you should use an individual trust. If you are married, there are two options: 1) you both can create separate individual trusts; 2) together you can create a Shared Living Trust.
How do I choose my successor trustee?
Choosing your successor trustee is a very important process. Family members and close friends are usually the best choices. Remember, the original trustee will be you, the grantor. The successor trustee will only take over in the event of the grantor's death or incapacity.
Should I keep other documents with my living trust?
If you execute a Pour-over Will (recommended) you should keep it with your living trust or you can file it with the county, where applicable. Also, any amendments to the trust should be properly executed and kept with the original trust. You are encouraged to write a letter to accompany your trust, especially if you are giving out unequal shares of your property or disinheriting children.
Everyone should have a living will or health care proxy. In addition, a durable power of attorney for financial matters should be executed so that the successor trustee can manage your affairs during a time of incapacity when you have a living will.
What happens if the successor trustee dies before the grantor?
Our living trust appoints 2 successor trustees. To add or change a successor trustee, simply amend the trust by filling out an amendment form. All amendments must be notarized.
What assets should be transferred into a living trust?
Typically, most assets that would be probated are transferred into the living trust. This would include real estate (including homes), business interests, money market accounts, stocks, bonds, mutual funds, precious metals, gems, antiques, artwork, royalty contracts, patents, copyrights, numismatic as well as other valuable collections and other business interests. Life insurance and annuities will usually list the living trust as the remainder beneficiary. IRAs should not be re-titled in the name of the trust.
Bank Accounts such as checking and savings accounts or any account that move money frequently should not be placed into a living trust. You may be able to make the trust the beneficiary of such accounts.
Autos / Vehicles that require insurance may be difficult to insure if placed into a revocable living trust as many insurance companies are hesitant to issue a policy when a vehicle is titled to a trust. In addition, most vehicles depreciate rapidly.
Should my home (homestead) be transferred into the living trust?
This is a common practice, if for no other reason than to avoid probate, however, there are those in the estate planning community that suggest using survivorship deed configurations instead. Survivorship configurations would include tenancy by the entirety or joint tenancy with rights of survivorship. See Title Property To Avoid Probate.
Is my homestead exemption affected by transferring my home into a living trust?\
No, your homestead exemption is unaffected and you can continue to take the exemption for tax purposes.
Will a revocable living trust affect my personal income taxes?\
No. In the eyes of the IRS, a revocable living trust is transparent during the grantor's lifetime.
Does a revocable living trust provide asset protection?
Courts do not respect revocable trusts when it comes to the collection of a court judgment. An alternative for asset protection can be a LLC. You can put the assets in a LLC and have the LLC owned by the trust. This may not be feasible if there is a mortgage or lien that accelerates upon transfer of the property. Transfer to a LLC would be considered a sale and the full amount of the mortgage / lien may have to be paid in full upon the sale. Living trusts are acceptable transfers that do not trigger acceleration.