- Revocable Trusts can Be Changed or Revoked
A Revocable Living Trust is an entity created during a Grantor’s lifetime to hold assets, for the purpose of distributing them after the Grantor’s death. During their life, the Grantor can alter the terms of the Trust, add and remove assets, and, if at any time the Grantor decides they no longer want the Trust, they have the right to revoke it. However, once the Grantor dies, the Trust becomes irrevocable.
- You Still Need a Will
A comprehensive estate plan includes many documents, and a Revocable Trust doesn’t replace any given document. If you have a Trust, you’ll need a “pour-over Will” as well. A pour-over Will goes into effect upon your death, and automatically transfers to your Trust any of your assets that are not currently assigned or titled to your Trust. Usually, this includes personal property, but it can function for larger assets as well.
- Not All Your Assets Should Go In Your Revocable Trust
Many assets allow you to designate a direct beneficiary upon your death. These assets can then bypass both probate and Trusts and go straight to the intended beneficiary. Examples include:
o Account Beneficiary Designations: Many financial institutions, life insurance policies, and retirement accounts allow the owner to designate beneficiaries of the account while they are still alive. After the owner’s death, the account passes directly to the designated beneficiary.
o Real Property Deeds: Many states allow for Beneficiary deeds or Transfer-On-Death deeds. This allows an owner of real property to execute a deed that names a beneficiary who will obtain title to the property at the owner’s death without going through probate. The deed gets recorded while the owner is still alive in the county where the real property is located.
o Title Assets with Rights of Survivorship: Assets that are owned jointly with right of survivorship will pass directly to the surviving owner. This is a common way for married couples to hold title to real property and bank accounts.
- Trust Assets are still obligated to pay state inheritance or estate taxes.
Some people think that Trust assets are protected from taxes. While this may be true for certain types of Trusts, it is not the case for a Revocable Trust. If your state imposes estate or inheritance taxes, assets in your Trust will not avoid being taxed.
It’s never pleasant to think about what might happen to your family and your assets should you pass away. But setting up a Revocable Living Trust helps to put a plan in place. Managing and distributing assets via a trust can help your loved ones avoid the hassle and financial stress of probating your estate.