The revocable living trust is an estate planning tool. Also referred to as a living trust or revocable trust, this type of trust acts as the foundation of an estate plan. They also provide privacy while avoiding probate and fighting over assets.
Creating a revocable living trust you will be required to compile a variety of information. This includes your personal information regarding where it will be signed and possible beneficiaries. Additionally, it is essential that you name a trustee. This is the person who will ensure that the assets listed are distributed as outlined in the trust. There is no limit to the type of assets or the number of assets that can be distributed in a revocable living trust.
How Revocable Living Trusts Work
Although a trust is a legal entity that holds assets or property, it is empty until transferred over to the trustee. This process is called “funding the trust,” and leaves the trust considered empty until completed.
There are two forms of trusts, revocable and irrevocable. Typically the living trust is revocable, which means that the trustee technically owns the assets while acting as trustee. Despite this, the trust maker (original owner) has the right to undo the trust at any time. Should they choose, they can reclaim any assets that were put into a trust. This includes changing the beneficiary, taking back the assets, or selling the assets. The trustee, however, will retain final control.
What is unique about a revocable living trust is that they are not required to have their own taxpayer identification number. Instead, the revocable trust will take on the Social Security number of the trust maker. All income and deductions from the trust are required to be reported on the trust maker's Form 1040 tax return, just as they would have done before.
The purpose of a revocable living trust is to ensure that your money gets into the hands of the beneficiaries you choose when you want it to be given.
What Assets Can be Put into a Revocable Living Trust
- Real estate
- Retirement funds
- Small business interests (stock, partnership interests, LLC interests)
- Patents and copyrights
- Precious metals (silver, gold, platinum, etc.)
- Valuable works of art, furniture, or antiques
- Life insurance
- Securities (stocks and bonds)
- Bank accounts
- Valuable collections (coins, stamps, etc.)
Benefits of Revocable Living Trusts
Most people create a will before they die. When you have a will, upon your death, your assets will go through a process called probate. This process involves a court proceeding where your assets will be distributed according to what you placed into your will.
Using a revocable living trust means that your family will be able to avoid probate. This process is extremely slow and can take many months. Especially if your estate is complicated, meaning you have a property in another state than Delaware, your beneficiaries may need to go through more than one probate.
After your passing, your trustee will pass your assets on to your beneficiaries immediately. Not only will this ensure that your beneficiaries inherit your entire estate, but it will save them grief during their mourning.
Fewer Costs Down the Line
Although creating a living trust requires more funds upfront than a will or standard trust, it will allow for fewer costs in the future. Living trusts mean less work down the line. They can also ensure that if someone contests a provision, it will most likely not be accepted.
By creating a revocable living trust, you will be able to amend it at any time. This can be incredibly important if something major in your life changes, or if you simply decide you want to change your beneficiaries. If you are looking to begin estate planning at a young age, a revocable living trust is an attractive option.
There are three phases of life and death in which a revocable living trust covers you and your assets. This includes while you are alive, while you are alive and incapacitated, and then after your death.
If you were to become incapacitated, then the trustee would be able to take over your estate and manage your affairs. Included in this can be specific instructions for living situations or spending habits in regards to minor children.
The FDIC (Federal Deposit Insurance Corporation) protects money in bank accounts up to an amount of $250,000. When it comes to a revocable living trust, the owner will receive insurance of up to $250,000 for each beneficiary. There is a maximum amount, and that is up to $1,250,000.
When you pass away, every transaction within your will is entered into the public record. This means that any person can see who your beneficiaries are, and what they will inherit. If you are a family who enjoys your privacy, then this can be a bit concerning.
Creating a revocable living trust means that your assets will be kept private, and no one will be able to trace where your assets went. Not only does this protect your assets, but it also protects your beneficiaries.
Should You Set Up a Revocable Living Trust in Delaware?
Setting up a revocable living trust is established with a written agreement and the help of an estate lawyer. This agreement should declare the assets in which you wish to be placed into the trust, as well as the trustee who will manage it.
Any competent adult can establish a living trust, and you can turn over the responsibility of the trustee to any other competent adult. In addition, you can choose to name a bank or trust company. There is also the option to act as your own trustee while alive.
Although a revocable living trust requires more effort to form and there is a cost to form one, the disposition of your estate will be much easier as compared to a will. If you prefer to keep your assets private and maintain control over your assets while alive, then a revocable living trust is the best option for you.