Revocable Living Trusts FAQs
REVOCABLE LIVING TRUST FAQS
Revocable trust, living trust and revocable living trust are terms used interchangeably.
Can I act as my own trustee? Yes. If you are competent to handle your financial affairs now, there's no legal reason why you can't be the trustee of your own trust. In fact, this is what most people choose to do. And if you're married, you and your spouse can act as co-trustees.
Will I still have access to the assets I place in my Living Trust? Yes. If you're the trustee, you can manage the assets as you wish -- spend, save, invest, give them away -- just as you do now. When you set up your Revocable Living Trust, you simply transfer title of your assets from you as an individual, to you as the trustee of your trust. You manage those assets for the benefit of the trust beneficiary -- yourself. Furthermore, if for some reason you decide you don't like the terms of the trust, you can amend it or revoke it at any point without penalty. It's your trust, your assets, and business as usual.
Can I change the provisions of my Living Trust without complications?Yes. As long as you are competent, you can change the terms of your Living Trust at any time. You can also completely revoke it without penalty.
Is my Living Trust still valid if I move to a different state? Yes. Your Living Trust is valid in all fifty states, regardless of the state where it was originally created.
Isn't a Living Trust just a tax loophole the government will close down?No. Your Living Trust is a form of ownership with roots in English common law. It has been recognized for centuries. The government has no interest in making you go through a living probate (guardianship) or a death probate. Those proceedings only create more of a backlog in the court system.
Can I name trustees and beneficiaries who live out of state? Yes. There are no limitations on where your trustees or beneficiaries must reside.
Will my Living Trust permit me to avoid income taxes?No. A Revocable Trust permits you to avoid guardianship (also known as "living probate") and death probate. It can also reduce or possibly eliminate Federal Estate Taxes, which are different from income taxes. But a Revocable Trust is not a strategy for reducing income taxes. In fact, if you're the trustee of your Living Trust, you will file your income tax returns in exactly the same way you filed them before the trust existed. There are no new returns to file, and no new liabilities are created.
Are there any tax advantages of a Living Trust? Yes -- if your estate is taxable. A properly drafted revocable living trust can double the amount you and your spouse can pass estate-tax free.Note: The 2014 unified estate and gift tax exemption is $5.22M. This amount has an automatic cost of living adjustment each year.
Is a Living Trust only for the rich? No. This is a common misconception because a Living Trust can help reduce Federal Estate Tax. But even if your estate is not taxable, there are good reasons to choose a Living Trust as your estate planning tool.First, regardless of whether your estate is taxable, a Living Trust can keep your assets out of the probate court. This eliminates court fee and attorney's fees and allows more of your assets go to your heirs. Second, it spares your family the delays, inconveniences and hassles associated with the probate process--an especially significant consideration since many families live at great distances and for whom the probate process would present significant hardship. Third, since a Living Trust is a private document, it is not filed publicly like a will is. No one -- not an ex-spouse, a former in-law, a nosy neighbor-- will have access to information about your financial status or who got what. Lastly, a Living Trust offers protection against guardianship, a topic covered in detail below.As a general rule, if your total estate is greater than $150,000, a living trust offers substantial protection for your family.
If I transfer real estate into my Living Trust, will my property taxes go up? No. Transfers into your Revocable Living Trust have no effect on your property taxes.
If I'm part owner of property, can I transfer my share into a Living Trust? Yes. Your share can go into the trust without changing the interests owned by others.
Will I have to consult an attorney every time I buy or sell assets? No. Your Living Trust will simplify life, not complicate it. Once your current assets are transferred to your Living Trust, you take title to all new assets in the name of the trust. Your assets are owned by you as the trustee of your trust.
Does my Living Trust need to be publicly registered or recorded anywhere? No. It is a private document which unlike a will is not entered into public record. You should be aware that if you own any interest in real property, your deed should be filed as a matter of public record. However, this is the case with all real property, whether or not you place it in a revocable trust.
I own real property in a different state. Can I transfer it into my Living Trust? Yes. In fact, out-of-state real property should be transferred into your Living Trust. Otherwise, upon your death, there will be a death probate in every state where you owned real property. When the property is owned by your Living Trust, there is no need for these assets to go through probate anywhere.
I'm married. Can I transfer my separate property to a Living Trust? Yes. All your assets, regardless of their nature, are put in a Living Trust but they are not co-mingled. Separate property assets retain their separate property character while in your trust.
Does a Living Trust provide any protection for me while I am alive? Yes. This "living" protection is one of the most valuable aspects of a Living Trust. With increasing longevity, we are at greater risk of experiencing disability that renders us unable to manage our personal and business affairs. A properly drafted Revocable Trust provides assurance that should disability occur, your affairs will be managed by whom you want, how you want. This also reduces the possibility of a court-appointed guardianship, a public and costly process.
Doesn't my Durable Power of Attorney authorize someone to manage my affairs just like a Revocable Trust? Not really. In real life, financial institutions tend to be very reluctant to grant anyone but you access to your assets -- even your authorized agent who presents a signed Durable Power of Attorney. A Revocable Living Trust designating the powers you grant to your agent (by itself, or backed up with a Durable Power of Attorney) is a far more powerful legal tool than a durable power of attorney alone.
Can't I use an office supply form to create a Living Trust without assistance? No. Think of your trust as the blueprint that will be followed if you become unable to manage your own affairs or when you die. A do-it-yourself job is not advisable for such a vital plan. Also, laws relevant to this area of law are in constant flux. Your Living Trust--which you rely upon to speak for you when you cannot -- should be drafted by a qualified attorney with experience in estate planning, a complicated area of law.
Is a Living Trust a good idea for a single person or someone who doesn't have children? Yes. If you're widowed, divorced, or unmarried, a Living Trust offers greater protection that your assets will be distributed in exactly the fashion you wish. Furthermore, if you have no spouse or children, there is a greater risk of court guardianship if you become ill or disabled. Your Revocable Trust will spell out what you want done and by whom (whether a relative or corporate trustee) in case you become disabled.
Are there any major disadvantages to a Living Trust? For most people, no. Since you have complete control of all assets in your trust, you're free to manage your assets any way you wish. Also, because your Living Trust is revocable, you retain the legal right to make any changes in it whenever you want, so long as you're alive and competent. A carefully designed and properly funded Revocable Trust will simplify most people's lives and the lives of the people they care about, eliminating worries about what might happen when death or disability strikes.