Investing With A Revocable Living Trust: A Guide

A revocable living trust (RLT) is a legal document that allows you to maintain control over your assets and their distribution to beneficiaries after your death. It offers greater privacy than a will and helps avoid the lengthy and costly probate process. While a will is a cheaper option for simpler estates, a revocable living trust provides more flexibility and control over asset distribution. This type of trust is particularly useful for complex estates, allowing for changes to be made at any time and offering faster asset distribution. However, it's important to note that a revocable living trust does not provide tax benefits or protection from creditors.

How to create a revocable living trust

A revocable living trust is a legal document that lets you manage your assets during and after your lifetime. It is a popular estate-planning option as it typically bypasses the probate process and can protect assets in the event of a divorce or bankruptcy. Here is a step-by-step guide on how to create a revocable living trust:

Step 1: Choose between an individual or joint trust

You can choose to create an individual living trust or a joint living trust. If you are creating a joint trust, it is usually done with a spouse, and it can contain individual assets as well as jointly owned property. Individual living trusts are often chosen by those who wish to keep their assets separate.

Step 2: Decide what property to include in the trust

The assets you put into the trust will depend on your personal estate planning goals. If you are creating a trust to reduce probate costs for your beneficiaries, include items with the highest value. Common assets to include are life insurance policies, real estate, bank accounts, investment accounts, and business interests.

Step 3: Choose a trustee and a beneficiary

As the trustor, you can name yourself as the trustee, which means you will be in control of the trust and its property while you are alive. You will also need to choose a successor trustee to take over and manage the trust after your death. You will also need to decide who will be the trust's beneficiaries—those who will receive the trust property.

Step 4: Create the trust document

It is recommended to create the trust document with the help of an estate planning attorney, or you can use an attorney-assisted service. The document should include the names of the grantor (the person creating the trust), the trustee, the successor trustee, and the beneficiaries. It should also list the assets the grantor wishes to include in the trust.

Step 5: Sign and notarize the trust document

Once the trust document is finalized, the grantor must sign it in the presence of a notary public to make it official.

Step 6: Transfer assets into the trust

The final step is to transfer ownership of your assets into the trust. This can be done by retitling the assets in the name of the trust. For example, you can retitle real estate through a quitclaim or warranty deed, and for financial assets, you can reach out to your bank.

Creating a revocable living trust can be complex and time-consuming, and it may be beneficial to seek advice from an attorney to ensure that your trust is set up correctly and that your assets are safely transferred.

Pros and cons of revocable living trusts

A revocable living trust is a legal document that allows an individual to maintain control over their assets and plan their distribution after their death. Here are some pros and cons of revocable living trusts:

Pros:

• Avoid probate: A revocable living trust helps bypass the lengthy and costly probate process, ensuring a faster distribution of assets to beneficiaries.
• Privacy protection: The probate process makes a will a public record, whereas a revocable living trust keeps information about assets private.
• Flexibility: A living trust allows changes to be made to the trust document while the individual is still alive.
• Plan for incapacity: A revocable living trust can be used to plan for incapacity, allowing a successor trustee to manage the trust assets according to the grantor's wishes.

Cons:

• No tax advantages: Revocable living trusts do not offer direct tax benefits or reductions. The assets are still considered the property of the grantor, and they remain taxable.
• Costly and complex: Establishing and maintaining a revocable living trust can be expensive and time-consuming, requiring legal fees and ongoing paperwork.
• Limited asset protection: Revocable living trusts may not effectively shield assets from creditors or lawsuits compared to irrevocable trusts.
• Funding challenges: Transferring assets into the trust can be challenging and may require constant updates due to changing financial circumstances.

Revocable living trust vs. will

A revocable living trust and a will are both estate planning tools, but they serve different purposes and have distinct advantages and disadvantages. Here is a detailed comparison between the two:

• A will is a simple legal document that outlines an individual's wishes for the distribution of their property and assets after their death. On the other hand, a revocable living trust is a complex legal contract that allows an individual to transfer their property and assets to an account managed by a trustee.
• Wills take effect only after the individual's death, whereas revocable living trusts take effect immediately upon signing and funding.
• Wills are public documents and go through probate, which can be a lengthy and costly process. In contrast, revocable living trusts are private documents and help simplify or avoid probate altogether.
• Wills offer limited control over the distribution of assets, especially if the individual becomes incapacitated before death. Revocable living trusts provide greater control and can ensure asset management during incapacitation.
• Wills are generally easier and more affordable to create than revocable living trusts, which require more legwork and can be more expensive to establish.
• Wills may be preferable for individuals with simpler estates and those who want to retain ownership of their assets before death.
• Revocable living trusts offer increased privacy, better control over asset distribution, and are ideal for those with complex estates, multiple properties, or significant assets.
• Both tools can be used together as part of a comprehensive estate plan, with the will serving as a backup to ensure that any assets not held by the trust are distributed according to the individual's wishes.

In conclusion, the choice between a revocable living trust and a will depends on an individual's specific needs, the complexity of their estate, and their goals for asset distribution and management. It is essential to consult with a legal or financial professional to determine the most suitable option.

What assets can go into a trust?

A revocable living trust is a legal document that gives someone the power to make decisions about another person's money or property held in the trust. It is a useful tool to help your assets pass smoothly to your beneficiaries. Here are some of the assets that can be placed in a revocable living trust:

• Real estate: Your home is potentially one of your largest assets, and a living trust can help transfer real estate quickly to your beneficiaries. It also helps avoid separate probate proceedings for properties owned out of state or in different counties. However, properties with a mortgage would require retitling into the name of the trust, and some lenders may be reluctant to do this.
• Financial accounts: Various types of financial assets can be owned by a trust, including bonds and stock certificates, shareholders' stock from closely held corporations, non-retirement brokerage and mutual fund accounts, money market accounts, cash, checking and savings accounts, and certificates of deposit (CDs). It is important to note that retitling a CD can trigger early withdrawal penalties, depending on the financial institution.
• Life insurance: Placing life insurance in a trust can protect it from creditors and make it easier for your loved ones to access the funds by avoiding probate. However, if you are the trustee of your revocable living trust, life insurance proceeds may be counted as part of your estate's worth and could create a taxable situation if it exceeds the IRS threshold.
• Valuable personal property: Personal items such as jewellery, art, collectibles, and furniture can be placed in a trust. Items without legal certificates or titles are listed on a schedule kept with the trust documents, while those with certificates or legal titles may require the owner to quitclaim their ownership interest to the trust.
• Mineral rights: Transferring gas, oil, water, or other mineral rights to a trust may require an assignment or a new deed.
• Collectible vehicles: Some vehicles retain their cash value over time and may be worth transferring to a revocable living trust. However, it is important to consider any title transfers and taxes that may be imposed.
• Business interests: Transferring your business interest into a revocable living trust can provide relief to your family from carrying the burden of business debts and potentially reduce the tax burden on your estate. This includes sole proprietorships, partnerships, and limited liability companies (LLCs).

It is important to note that certain assets, such as retirement accounts, health savings accounts, active financial accounts, vehicles, and cash, are typically not placed in a revocable living trust.

How to invest in real estate using a revocable living trust

A revocable living trust (RLT) is a legal document that allows you to maintain control over your assets and avoid probate after your death. Here's a step-by-step guide on how to invest in real estate using an RLT:

Step 1: Create a Trust Document

The first step is to create a written agreement or declaration that outlines the details of the trust. This includes appointing a trustee to manage and administer the property, as well as naming the beneficiaries who will receive the assets after your death. You can also name yourself as the trustee, in which case a successor trustee will be appointed to take over after your death or if you become incapacitated.

Step 2: Sign and Notarize the Trust Agreement

For the trust to be legally valid, it must be signed by the grantor (the person creating the trust) and notarized. This step is crucial to ensure the legality and enforceability of the trust.

Step 3: Transfer Assets into the Trust

Once the trust agreement is in place, you can start transferring your assets into the trust. This includes real estate properties, investment accounts, bank accounts, and other tangible assets. For real estate investments, you can use a quitclaim deed to transfer ownership to the trust. Any mortgages on the property may require retitling, and some lenders may be reluctant to do this.

Step 4: Manage and Invest in Real Estate

As the trustee, you have the legal authority to spend and invest the money and property in the trust for the benefit of the named beneficiaries. This means you can purchase, manage, and sell real estate properties within the trust. Any income earned by the trust's assets is taxable and goes to the grantor.

Step 5: Amend and Update the Trust as Needed

One of the benefits of an RLT is its flexibility. You can amend or change the trust at any time. This includes changing beneficiaries, adding or removing assets, or updating investment strategies.

Step 6: Distribute Assets to Beneficiaries

Upon your death, the trustee will distribute the assets in the trust to the named beneficiaries according to the instructions in the trust document. You can choose to have the assets transferred immediately or set future dates for distribution, such as milestone birthdays.

Frequently asked questions