Revocable living trusts are very common in estate planning. Having one gives you a safe place to “put” your valuables along with an instruction manual on what to do with you and your stuff if you can’t act on your own behalf.
While you are alive and well you are in control of everything as the “trustee.” You can make changes to your instructions and the things in your trust. Once the trust has been created, you can change ownership on your home, bank accounts, investment accounts, and other assets to your revocable living trust. This process is called funding or asset alignment. If you have income-generating assets like investment accounts and rental properties, you don’t have to change anything about how you normally file your taxes. The trust uses your social security number for tax purposes.
If you should become incapacitated or die, your trust tells everyone who you want to be in charge of you and your things. If you have minor children, you can name who should be in charge of them. This can be an individual, multiple people, an independent fiduciary, or a combination. You can name a spouse or trusted family member to be in charge of you and your personal belongings. You can name the same family member or an independent fiduciary to handle your financial assets. These are called successor trustees.
Upon your incapacity or death, your trust may become irrevocable or unchangeable. The successor trustee(s) must follow the instructions laid out in the trust on how to care for you and your things if you are incapacitated. If you should die, it tells them who gets what and when they should get it.
For example, if you have a child or grandchild that is a minor, is financially irresponsible, or struggles with addiction, you probably don’t want them to receive a large sum of money all at once. You can instruct your successor trustee to only distribute assets at certain ages or upon certain criteria being met. Since the assets are still owned by your trust and the trust is irrevocable, they are protected from the creditors, predators, and taxes of your beneficiaries.
Once you are no longer in control of the assets, the trust must obtain a separate tax identification number. Any income generated by assets owned by the trust must file a separate tax return.
If you are married and have a joint trust with your spouse, the surviving spouse may retain the ability to make some changes. You may choose to make the trust irrevocable after the first of you passes away, after the death of both of you, or not irrevocable at all. This can be custom-tailored to meet your needs.
In addition to providing protection for you, your family, and your things, trusts can avoid probate. That’s because you technically don’t own your stuff (your trust does), and your trust continues after your death or incapacity. This can save your loved ones considerable money, time, and hassle. This also affords privacy for your estate. Without probate, there is not a public record of your beneficiaries and assets left behind. Creditors and predators like to lurk in the public records of probate courts.
Our Brandon estate planning lawyers are here to help you determine if a trust is best suited for your planning needs. To schedule an appointment, contact us at (813) 438-8503.