What is Revocable Living Trust?
A Revocable Living Trust is a powerful estate planning tool that offers a range of benefits.
In this post, we’ll explore the pros and cons of a revocable living trust, how to create one, its comparison with an irrevocable living trust, and its role in asset protection.
Pros and Cons of a Revocable Living Trust
Pros
- Avoids Probate: Assets held in a revocable living trust bypass the probate process, which can be time-consuming and expensive.
- Protects Your Privacy: As the assets in a revocable living trust aren’t subject to probate, they won’t be made public record.
- Protection in Case of Incapacitation: A revocable living trust allows you to select a successor trustee who assumes control of your assets should you become incapacitated.
- Separation of Assets: A revocable living trust can help you separate your assets from communal assets.
Cons
- No Asset Protection: If a grantor is sued, trust assets can be used to satisfy a judgment. A revocable living trust does not protect assets from creditors.
- Cost: Setting up a revocable living trust can be expensive.
- No Direct Tax Benefits: Revocable living trusts do not provide direct tax benefits.
How to Create a Revocable Living Trust
- Create a Trust Document: The trust document lists assets the grantor wishes to include in the trust. It also names a trustee, as well as the heirs or beneficiaries who will receive assets after the grantor dies.
- Sign and Notarize the Trust Agreement: The grantor must sign the trust document and have it notarized to make it official.
- Transfer Assets into the Trust: The grantor should transfer assets — such as bank accounts, investment accounts, and real estate — to the trust by retitling the assets in the name of the trust.
Comparison with Irrevocable Living Trust
The key difference between revocable and irrevocable trusts is that revocable trusts can be changed or canceled at any time, while irrevocable trusts are much more difficult to change.
Both a revocable and irrevocable trust can help you to facilitate a transfer of assets outside of probate.
However, irrevocable trusts offer more protection for assets as well as the ability to avoid estate tax in certain circumstances.
Conclusion
A revocable living trust is a flexible estate planning tool that can help you manage your assets during your lifetime and beyond.
However, it’s important to understand its limitations, especially when it comes to asset protection and tax benefits.
Always consult with a legal professional when deciding on an estate planning strategy.
Stay tuned for more posts on estate planning and related topics!
