Why You Need a Revocable Living Trust
Families in the LGBTQ community have fought hard for the right to be legally considered a family. While gay marriage is now legal in all 50 states, there is still a need to protect your beneficiaries and your assets in the event of your death or incapacitation through a revocable living trust. Doing so requires you to take actions while you are very much still alive and able to make financial decisions.
WHY Do You Need a Revocable Living Trust?
One form of asset protection is a revocable living trust, also commonly known simply as a living trust. It is a legal entity that is created to hold ownership of an individual’s estate. The individual who owns the estate is known as a granter or trustor, but also generally serves as a trustee, controlling and managing the estate. While alive, the trustor has the complete power to revoke the trust, meaning all assets held in the trust revert back to him or her as owner. However, if the trustor becomes mentally incapacitated and is unable to administer his or her financial affairs, a successor trustee is named in the living trust to step in and manage the assets. If the trustor dies, then the living trust becomes irrevocable and the successor trustee is now responsible for paying for the trustor’s final expenses through the estate as well as disbursing the remaining estate to the beneficiaries named in the trust’s formation documents.
WHAT Is It For?
The reasons for forming a revocable living trust include:
- Avoidance of probate: Because the social security number associated with the trustor and the trustee are the same, taxes are paid on the assets held by the trust for as long as the trustor lives. As long as the assets in the trust have not been relinquished at the point of the trustor’s death, they are still considered “owned” because the trustor is still able to reclaim the assets held in the trust anytime he or she wishes. Upon death, the successor trustee can settle the trust outside of court and without supervision.
- Maintaining privacy: A will becomes public once it enters probate court. By establishing a revocable living trust and avoiding probate court, the only one who knows about your assets and your beneficiaries are the beneficiaries themselves and — in some states — heirs who have not been names as beneficiaries.
- The ability to plan for incapacitation: While many people wonder what will happen to their estate when they die, very few think about what will happen to it if they become mentally unable to administer their own assets. The revocable living trust allows you to plan for this unfortunate event by naming a successor trustee of your choosing to step in and oversee your assets until or unless you are once again able to handle these matters yourself.
WHEN Are Revocable Living Trusts Needed?
Contrary to popular belief, revocable living trusts aren’t only necessary if the trustor possesses a lot of wealth. There are other times when the need for this document becomes startlingly clear, as well. Some of those times include:
- Having a family history or a gene that indicates that an individual is at high risk of acquiring a cognitive impairment such as Alzheimer’s or dementia. In these cases, before the individual is diagnosed or even after diagnosis but while he or she is still lucid enough to control his or her financial matters, a plan should be put in place.
- When the trustor has minor beneficiaries but has gone through a divorce and wants to name his or her children as the primary beneficiaries. If the trustor’s death occurs while these beneficiaries have not yet reached the age of majority, the assets can be held in a trust and administered by a named successor trustee until the children become of age to accept the assets. The trustor is able to set an age at which the assets are then disbursed to the beneficiaries, rather than merely disbursing them once the beneficiary reaches the age of 18.
- If a trustor is not legally married, the revocable living trust will allow him or her to name a successor trustee or beneficiary of his or her choosing and allow those beneficiaries to receive the assets without the cost or hassle of probate.
- If you’re married and your estate exceeds the federal estate tax exemption, establishing a revocable living trust allows you to take advantage of both spouse’s exemptions in order to save on taxes owed.
- If you or your spouse are in a second or third marriage, you may have different beneficiaries — such as children or grandchildren from a previous relationship. Establishing a revocable living trust allows each spouse to direct his or her portion of the assets to the beneficiaries of his or her own choosing.
HOW a Revocable Living Trust Protects Your Loved Ones
As described above, a revocable living trust protects your loved ones’ ability to receive your assets without going through the costly hassle of probate, ensuring that your assets go to those who you wish to have them rather than the state delegating who your beneficiaries are. Additionally, it protects the privacy of your reputation and your loved ones’ privacy from the public probate record. It also provides tax relief in allowing spouses the ability to both claim estate exemptions. In Pennsylvania or New Jersey, if you own property in another state, a revocable living trust allows your loved ones to avoid ancillary probate in another state where probate is much more difficult of a process.
WHAT Happens if You Don’t Have a Revocable Living Trust?
Without a revocable living trust, your estate will likely go to probate, meaning the courts will decide who gets the fruits of years of hard work and careful planning. Your family will be less protected from the public record of probate. If you become mentally incapacitated, you will be unable to name a person to oversee your assets until or unless you are able to administer them yourself, and if you die, your assets may not be protected until such time as they are of age to become beneficiaries.