Do you ever worry about how your legacy will be handled or how your beneficiaries will manage their portion of their inheritance when you pass away? We all love our children, but there’s often one in the bunch who just can’t manage his or her money, and leaving that person a large sum could be a disaster. One solution that allows you to still exert some control over your money is the revocable living trust (RLT). An RLT can be used as a substitute for a will by providing for the distribution of assets upon the grantor’s death. This allows for a faster and less costly method of asset transfer than a will, which requires court supervision or probate.
The revocable living trust is an arrangement by which you transfer ownership of your property into a trust throughout the course of your lifetime. To fully understand how a trust operates, let’s take a look at the four main components:
- Grantor – the creator of the trust
- Trustee – the person or entity that distributes and manages the trust property according to the documents
- Trust Assets – the property transferred into the trust
- Beneficiaries – those who receive the benefits of the trust
Once you understand the primary mechanisms that make up a trust, you’ll need to be aware of the different types of trusts. Trusts can be designed for many different financial and personal situations. Trusts come in many forms but because of the complexity of some, we will only focus on RLTs.
Unlike a will, which comes into play only after you die, the living trust can start benefiting you while you are still alive. The trust is revocable in nature, which allows you to make changes to fit your personal situation.
The revocable living trust is established by a written agreement or declaration that appoints a trustee to manage and administer the property of the grantor. As long as you’re a competent adult, you can establish an RLT. In essence, the trust is like a rulebook for how your assets are to be handled when you die. As the grantor, or creator of the trust, you can name any competent adult as your trustee; as mentioned in a previous post, some people prefer to choose a bank or a trust company to fill this role to eliminate the burden that may be placed on a loved one.
In summary, here are some advantages of a revocable living trust:
- Privacy Preservation and Probate Avoidance
- Unlike an Irrevocable Trust, you have the ability to amend a Revocable Living Trust
- Eliminate Challenges to the Estate
- Segregation of Assets, useful for community property assets
- Assignment of Durable Power of Attorney or a Guardianship
- Continuous Asset Management
The benefits go on and on, and although a Revocable Living Trust is a strategy that may work for some, it may not be the perfect tool for you. If you are considering using this strategy, be sure to visit with your attorney or accountant to make sure it is a good fit. As always, we’re here to help.