Estate Planning “The Revocable Living Trust”.

At the very core of estate planning, is the issue of how to title assets in order to preserve and reduce the cost of transferring assets at the death of the owner. One of the most effective ways to control the transfer of assets while reducing the cost is by using a revocable living trust. As stated in a previous article “Estate Planning Basics”, assets are left without an owner when the owner dies. When this occurs, an estate is created and filed with the probate court.

The Merriam-Webster Dictionary defines the word “trust” as follows:

• An equitable right or interest in property distinct from the legal ownership of it
• A property interest held by one person for the benefit of another

With a trust, a separate and distinct entity has been created that has the legal right to hold the ownership of assets. In the simplest form, a revocable living trust is nothing more than a legal document with the ability to both hold ownership of assets and to change over time.

Let me give you an example. Ben and Sara Sample hire an attorney to create the Ben and Sara Sample Revocable Living Trust. Once the trust has been created, they transfer the deed on their primary residence from Ben and Sara Sample (Joints Tenants with Rights of Survivorship) to Ben and Sara Sample Revocable Living Trust. In addition, they transfer the ownership of their bank accounts, automobiles, second home in Florida, and specific personal property to the trust.

By now, you are thinking why would you want to transfer my assets to a revocable living trust and give up ownership? Yes with a revocable living trust, you do give up ownership but you do not give up control of those assets. When a revocable living trust is created, someone must have the ability to manage the trust’s assets. That someone is referred to as the trustee.

You can be the trustee of your trust when you create your revocable living trust. Therefore, you have the ability to manage the very assets that you transfer into your trust. In addition, you appoint successor trustees. In the event of your death or if you become incapacitated, the successor trustee will manage the trust assets for benefit of either you or your beneficiaries. Besides trustees and successor trustees, there are named beneficiaries of trust assets. Upon the death of the trustees, the named beneficiaries in the trust will receive legal ownership of trust assets.

Now, let’s go back to my example of Ben and Sara Sample who created the Ben and Sara Sample Revocable Living Trust. Ben and Sara are the named trustees of their trust with their daughter, Susan, named as successor trustee. If Susan is unable to serve as successor trustee, Ben and Sara have named their son, Samuel, to serve as co-successor trustee. Lastly, Susan and Samuel are the beneficiaries of the trust assets after the death of both parents.

Even with the death of the last surviving spouse, the trust is still in effect. Because the assets are owned by the trust, there is no legal need to create an estate and file with the probate court. By avoiding this step, time is saved and the details of the estate are kept private.

Susan, as the named successor trustee, will simply file any required federal and state tax returns for the year of her parent’s death. Once the returns have been filed and any debt paid, Susan will divide up the remaining assets per the directions of the trust document. In this example, the trust assets would be divided between herself and her brother, Samuel.

For the record, I want to disclose that I am not a licensed attorney at law. You should seek out a competent estate planning attorney when and if you are ready to implement or review your current estate plan. This document is for educational purposes only and is not intended to provide legal advice.