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Regardless Of Estate Size, the Revocable Living Trust Remains the Foundational Tool of the Estate Plan

Regardless Of Estate Size, the Revocable Living Trust Remains the Foundational Tool of the Estate Plan

The revocable living trust acts as a will substitute and contains instructions for managing your assets during your life as well as upon death. It is created during your lifetime and becomes effective immediately when you sign it. But it will only control those assets that are transferred into the name of the trust. You can transfer property to the trust and still maintain control and use of all the property while living. You can revoke or change the trust at any time. You can be the trustee of your trust while living, and because these transfers are made ahead of time, upon your mental incapacity or death, your successor trustees can step into your shoes and start handling your financial affairs without a court order or the need to establish a conservatorship.

Because a will becomes effective only upon death, it does not address what happens in the event you become mentally incapacitated and can no longer handle your financial affairs. With a Will-based estate plan, attorneys typically utilize a Durable Power of Attorney in which one or more persons are designated as your agent. If there is no Durable Power of Attorney, or in the event the Power of Attorney is not accepted by a financial institution, your loved ones might have to file a petition with a court to be appointed as a Guardian and/or Conservator for the disabled person. If approved by the court, the Guardian will be granted specific powers to administer your assets and daily personal needs.

Upon your death, a will becomes a public document through the probate system. Your financial data and list of beneficiaries is on display for all who care to see. A trust, on the other hand, generally remains a private document.

If you are married, the revocable living trust may provide for the creation of a marital trust and family trust upon the death of the first spouse. You’ll sometimes hear these referred to as “A and B Trusts.” These “subtrusts” are designed to both maximize a married couple’s total estate tax exemptions, and to protect the trust assets against the surviving spouse’s “creditors and predators” – which may include a new spouse should the surviving spouse remarry.

After both spouses have died, assets may be distributed to the couple’s children or other beneficiaries in a variety of ways – including:

  • immediate outright distributions,
  • staggered distributions at various ages,
  • lifetime trusts with liberal standards,
  • lifetime trusts with conservative standards, or
  • special needs trusts.

When revocable living trusts first became popular in the 1980s, most thought that they were only for the wealthy. Over time, living trusts became a popular planning tool for any size estate and affluent families began to focus more on wealth transfer and tax savings with the use of a variety of irrevocable trusts, partnerships, and other planning tools. Nevertheless, even the most sophisticated planning solutions will likely continue to recommend the revocable living trust as the best choice to serve as the foundation of the overall plan.

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