With the future in constant flux, planning your retirement is challenging enough. Planning for what will happen to your estate after your passing may feel even more difficult to approach with confidence.
Proactively setting up the right documents and estate plan, such as a revocable living trust, can go a long way in relieving your anxieties and protecting your legacy. Your beneficiaries will also appreciate the forethought, since your estate can avoid probate.
But first, you have to decide on which tools are right for you. What is a revocable living trust, and when is it the best fit for you, your family, and your loved ones?
Revocable Living Trusts Explained
Deciding where your funds and assets are best utilized for beneficiaries means you need a crash course on the terms and options available to you. Before diving into the planning process, let's break down what “revocable” and “living” mean in relation to trusts.
Revocable trusts are a flexible estate planning tool that allows you to maintain control over the assets within the trust during your lifetime. This control enables you to change the terms, amend the beneficiaries, and even revoke it if you desire.
Once you pass, it becomes an irrevocable trust, meaning your trustee (the person in charge of execution) and your beneficiaries cannot make any changes.
A living trust is a specific type of revocable trust. It means you retain full control over your trust, holding or managing assets for your beneficiaries after your death. It is created while you live, but sets out terms for beneficiaries at a set point in their lives, after your death, or other terms you decide upon.
When you do pass away, the contents of a living trust are not required to pass through the lengthy and time-consuming probate process.
With these definitions in mind, what exactly is a revocable living trust?
A revocable living trust is one that you establish right now, while you are still alive. You gain the right to continue making changes to it until your passing. As life circumstances change, you can likewise modify the plans for your assets as long as you live. Once you pass, it becomes irrevocable, and trustees oversee the payouts.
What is the Purpose of a Revocable Living Trust?
Why would you choose to put your assets into a revocable living trust? For most people, these trusts are designed to give you as much control and flexibility over your estate planning as you need and want. You have every right to decide who should receive what from your estate upon your passing.
However, the benefit goes beyond just leveraging your control as long as you live. It also means that your beneficiaries receive your gift more easily. Revocable living trusts allow them to bypass the probate process, granting them privacy and expediency in receiving your gift.
As long as you still live, you can retain control of the assets in the trust. This means that you can continue living in a real estate property that has been transferred to the trust if you need to.
What are the Benefits of a Revocable Living Trust?
Assets that you transferred into a revocable trust can still be managed according to your best interest by a trustee without the need to make changes to the trust.
If you do not have a living revocable trust in place with your assets, your loved ones may have to gain control of your assets through the court system, which can be lengthy and difficult.
It also permits your beneficiaries to have some privacy for the gift that you give them. If assets must pass through probate, that becomes part of the court record and is easily accessible to any person who wants to know (such as creditors). This can set your loved ones up for unnecessary hassle from people who are after your wealth.
Ultimately, a revocable living trust can save you and your beneficiaries time and money. It will cost some money to form and manage the trust, but since it avoids probate, the trust will save beneficiaries the time and expense involved in that process.
Revocable Living Trust FAQs
Can a revocable trust replace a will?
No, a will is still required for many aspects of your estate planning. For example, a will allows you to name an executor for your estate and accounts for assets not included in a revocable living trust. It is also key in the care of minor children who may need guardianship upon your passing.
Can you make changes to a revocable trust?
Yes, you can make changes to a revocable trust as long as you live. Upon your passing, it will turn into an irrevocable trust, and changes are no longer permitted.
What happens to a revocable trust when a grantor dies?
When the grantor dies, the revocable trust becomes irrevocable, and the trustee will be tasked with carrying out the wishes set out in the formation documents. There are many legal steps that need to be taken, such as filing tax forms and notifying financial institutions of the death.
Ultimately, they will carry out the final settlement and manage the distribution of assets.
Do beneficiaries of a revocable trust pay taxes?
Beneficiaries may be responsible for taxes on the gifts they receive through a revocable trust. They are required to pay taxes on income and distributions from the trust’s investments. However, it is important to know that they do not pay taxes on principal from the trust. A revocable trust does not change the taxability of assets; they would be the same as with a will.
Navigate Your Trust’s Formation with Magellan
Forming a trust is no simple task, and not a challenge to embark on alone. Estate planning requires a blend of legal expertise and financial know-how to ensure you can safeguard your estate without risking your comfort and lifestyle in retirement.
If you want to set up a revocable living trust that will benefit your beneficiaries after your passing, Magellan can help. We specialize in financial, legal, estate, and tax planning to help you make the most of your wealth. With a specialty in charitable remainder trusts, we help you plan for the future.
Reach out to us today to learn more about our services and set up your trust!
For a comprehensive review of your personal situation, always consult with a tax or legal advisor. Neither Cetera Advisor Networks LLC nor any of its representatives may give legal or tax advice.
This material provided by Kevin Meaders was written by Axle Eight, a non-affiliate of Magellan Planning Group and Cetera Advisor Networks LLC.