You may have heard the terms "living trust" or "revocable living trust", before, but aren't entirely sure what they mean or how they can benefit you and your family. If you want to learn more about how a revocable living trust can fit into your individual estate plan, you've come to the right place.
Before we dive too deep into the specifics of revocable living trusts, it's a good time to pause for a quick refresher on how trust funds work. In general, a trust fund is an asset management arrangement that involves the following parties:
- Grantor or Settlor: The person who creates the trust and transfers ownership of their assets to the trust fund. Real estate must be deeded to the trust, cars must be retitled, the balance of bank and investment accounts must be transferred, and so on. Once all of the assets are transferred to the trust, the grantor then provides specific instructions for how to manage the assets in the fund.
- Trustee: The person that holds the title(s) to the assets and manages the assets according to the grantor's instructions.
- Beneficiaries: The people that benefit from the trust, such as children or other family members.
In addition to these parties, most trusts also name successor trustees and successor beneficiaries. These successors will step in to fill their respective roles in the event of the death of the original trustee or beneficiaries. For example, a trust agreement may include language for successor beneficiaries that says something like this --
"During my life, use the trust assets for my benefit. When I die, use them for my surviving spouse's benefit. And when he/she dies, end the trust and give the assets to our children."
While different types of trusts are used in different situations, these core components are consistent. Keeping these terms and basic concepts in mind will help keep you oriented as we explain more about revocable living trusts.
Revocable Living Trust
What exactly does this mean? Let's break this down into more digestible pieces --
- Revocable: Just as it sounds, a revocable living trust is not permanent. A revocable trust can be revoked by the grantor after it is created. This is the opposite of an irrevocable trust, which cannot be modified after its creation. Naturally, revocable living trusts are the more flexible estate planning tools of these two main types of trust funds.
- Living: You can manage and make changes to the terms and assets of the trust fund while are you still living. In contrast, the terms of an irrevocable trust are set in stone and the trust cannot be modified, even if the grantor is still alive.
So essentially, a revocable living trust is an asset fund for your beneficiaries that can be modified at any time while you're still living. Due to its flexibility and ease of changes, this type of trust is the most frequently used trust in estate planning.
Common Uses of a Revocable Living Trust in Estate Planning
1. Limit Beneficiary Control
Revocable living trusts are often used to limit beneficiaries control of assets when the named beneficiaries are minors, mentally disabled or otherwise unable to responsibly manage the trust fund themselves, such as in instances of drug addiction or general immaturity.
A grantor may also use a revocable living trust to protect their assets from creditors or a soon-to-be ex-spouse in a failing marriage. Holding an asset in a living trust can protect against these kinds of risks.
2. Ease of Property Transfer
When a grantor transfers their assets to the trust, the assets will automatically pass on to their beneficiaries upon their death according to the trust’s instructions. Any assets held in a trust fund will not be subject to the provisions of a will nor the possibility that a later will with different instructions may be discovered, which can occur anywhere up to one year after the death of the grantor. This functionality simplifies the inheritance process for your loved ones, and reduces the possibility of stressing over conflicting inheritance instructions.
In Virginia, many grantors use this feature of revocable living trusts to their benefit if they own real estate in another state. Transferring a real estate deed to a trust allows for the trustee to make a deed to new beneficiaries upon the grantor’s death. Overall, this may be a simpler process than probating a will in Virginia and then having to repeat that process in a second state where the real estate is located.
3. Child by a Prior Marriage
Most couples who have children by prior marriages want to achieve two primary estate planning goals:
- To provide adequately for the survivor between the husband and the wife during the survivor’s lifetime and;
- Upon the survivor’s death, to benefit equally all of the children of both the husband and the wife by giving them whatever is left.
Fundamentally, these two goals are in tension. As the authority of the surviving spouse to use and benefit from the assets increases, the protection for the children of the first spouse to die decreases; and vice versa.
One way to accomplish both goals with less potential conflict is by transferring the assets into a trust upon the death of the first spouse. The surviving spouse will benefit from the assets for the rest of their life, but they will not be the Trustee who controls them. Upon the surviving spouse’s death, the remaining assets are then passed to all of the children. This arrangement simplifies the process and is ideal for couples with a blended family structure.
Overall, a revocable living trust is a powerful estate planning tool that can easily become the centerpiece of a well-crafted estate plan. The attorneys at Goodall, Carper & Dillon, PLLC are available and ready to help you establish your own revocable living trust. Contact us to get started today.