The revocable living trust has been a significant estate-planning tool for many years, and is the foundation for most estate plans in Wyoming. For that reason, it is important for people to understand how a revocable living trust works, the advantages of the arrangement and, most importantly, whether the advantages are applicable to their particular circumstances. If uncertain, our Wyoming trust attorney can assist you.
A trust is an agreement between individuals who establish the trust, called the trustors, settlors or grantors, and the individual(s) or company who will manage the trust’s assets, called the trustee. The individuals or organizations who receive the benefit from the assets in the trust are called the beneficiaries. A trust is called a living trust if it is a trust established between a trustor and a trustee while the trustor is still alive, as opposed to a testamentary trust which is established pursuant to a person’s Last Will and Testament and becomes effective upon the person’s death.
A living trust can either be revocable or irrevocable. If it is a revocable trust, the trustor can change the terms of the trust and/or revoke the trust completely at any time during his/her lifetime and competency. However, if the trust agreement provides that the trust is irrevocable, the trustor is not legally entitled to amend or revoke the trust. While irrevocable trusts are utilized in estate planning to some extent, the vast majority of trusts are revocable living trusts. Interested in knowing more? Discover whether anIrrevocable Wyoming Trust is a good fit for you.
While a revocable living trust has a number of advantages, the three primary reasons for establishing trusts of this type are:
With just a Will, the assets of a decedent’s estate will have to detour through probate court before those assets are distributed to the decedent’s beneficiaries. In very general terms, a probate is designed to ensure that a decedent’s debts are paid, and that the decedent’s assets pass to his or her beneficiaries in accordance with the decedent’s Will (or if the decedent did not leave a Will, then in accordance with intestate succession laws). Probate expenses in Wyoming generally approximate 5% to 10% of the gross probate assets.; however, if a person is diligent in transferring title to all of his or her assets to a revocable living trust prior to death, there would not be any assets titled in that person’s name at his or her death and, as a result, there would not be any assets of the decedent required to go through the probate proceeding.
Please note that in order to avoid a probate proceeding, the trustor must transfer the title to all of his or her assets to the living revocable trust during the trustor’s lifetime, and ensure that all life insurance proceeds and retirement plan assets which pass according to beneficiary designations upon his or her death are not payable to his or her “estate.” This transfer process generally requires the actual recording of new deeds for real estate, changing the name on bank and stock brokerage accounts, partnership interests, etc., and reviewing and possibly changing beneficiary designations on insurance and retirement assets. Following the transfer of assets, the trustee (which is normally the same individual as the trustor) transacts business involving the trust’s assets in the name of the revocable living trust; however, the revocable living trust does not have to obtain a separate federal identification number (unless the trustee is not the same person as the trustor), nor does it need to file separate income tax returns, since all of the income of the trust is simply reported by the trustor under the trustor’s social security number.
While probate proceedings can be avoided in this manner, it is important for individuals with substantial estates to understand that even if a trust is fully funded with all of the decedent’s assets, there will still be professional fees incurred for the preparation of the estate tax returns, the administration of the trust, and the allocation of the trust’s assets to the subtrusts which are established following the trustor’s death.
In addition to the primary benefits of a revocable living trust discussed above, there are other features of this type of trust which may be beneficial to trustors. For instance, in the event a trustor becomes physically or mentally incapacitated, the revocable living trust may eliminate the need for a conservatorship proceeding, and thereby permit the uninterrupted management of the trustor’s assets by the named successor trustee(s) without any court interference. This includes helping manage a limited liability company.
Further, when a Will is probated, the contents and distribution scheme of the Will, as well as a list of the decedent’s assets, may become a matter of public record. In contrast, the provisions of a revocable living trust and a disclosure of its assets are not filed with the probate court (regardless of whether or not there is a probate). And finally, since the revocable living trust is simply an agreement between the trustors and the trustees, which are often the same individuals, it is very easy to make modifications or changes, or revoke the agreement entirely, without the formalities required by statutes for other testamentary documents.