Frequently Asked Questions – Revocable Living Trusts

What is a Revocable Living Trust?

Rachel Drude-Tomori, Esq., LL.M.

 

This is an agreement with 3 parties:

  • The Settlor(s) (the person/people who form the Trust);
  • The Trustees (the people who manage the Trust); and
  • The Trust Beneficiaries (the people who benefit from the Trust).

For example, a husband and wife may name themselves all 3 parties to create their Trust, manage all the assets transferred to the Trust, and have full use and enjoyment of all the Trust assets as beneficiaries during their lifetimes. Further “back-up” Trustees can step in under the terms of the Trust to manage the assets should the couple become incapacitated or die. Special provisions in the Trust also control the management and distribution of assets to heirs in the event of the Settlors’ deaths. With proper planning, the couple also can avoid or eliminate death taxes on their estate. The Revocable Living Trust may allow them to accomplish all of this outside of any court proceeding. Thus the primary benefits of using a Revocable Living Trust are:

  • Avoids Probate Proceedings (upon death)
  • Avoids Guardianship Proceedings (upon incapacity)
  • Maintains Privacy
  • Provides a Unified Receptacle for Assets
  • Creditor Protection for Contingent Beneficiaries (e.g. your children)
  • Reduces Death Taxes
  1. Who Should Have a Revocable Living Trust?

Estate planning is not only for the phenomenally wealthy. Whether you are young or old, rich or have a modest estate, married or single, if you own titled assets such as a house and want your loved ones to avoid court interference at your death or incapacity, consider a Revocable Living Trust. A Trust allows you to bring all of your assets together under one plan without court interference.

This is especially important for individuals who own real estate in multiple states. For example, say you own real estate in Florida, New York and New Jersey. If you die owning these properties in your individual name, not only will your estate be subject to probate proceedings in Florida, but also in New York and New Jersey. This means three times the court costs and three times the lawyer fees. All of this could be avoided by transferring all three properties to a Revocable Living Trust while you are alive and have capacity.

  1. What does it mean to “fund” my Revocable Living Trust?

Only assets titled in the name of your Trust and assets payable to your Trustee (or payable to some other designated beneficiary) upon your death avoid probate. Thus, in order for a Revocable Living Trust to function properly, it’s not enough for the Settlor to simply sign the Trust Agreement. After the Trust Agreement is signed, the Settlor must “fund” his or her assets into the Trust.

Generally, in order to fund your Trust, you must transfer all of your individually-held assets to your Trust and amend beneficiary designations so that such assets are payable to the Trustee upon your death. For example, bank accounts can be re-registered in the name of the Trust, real estate can be deeded to the Trust, and life insurance policies can be made payable to the Trustee upon your death.

The ultimate goal of funding a Revocable Living Trust is to insure that the Settlor’s property is governed by the terms of the Trust Agreement. This, in turn, will allow the Trustee to manage accounts and assets held in the name of the Trust in the event the Settlor becomes mentally incapacitated or dies without the need for a court order or court interference.

About the Author: Rachel Drude-Tomori, Esq., LL.M. is the lead Partner in charge of the Estate Planning & Probate Department at Battaglia, Ross, Dicus & McQuaid, P.A. Rachel currently serves as Chair of the Probate Section of the St. Petersburg Bar Association and Administrator of the Thomas E. Penick, Jr. Elder Law Inn of Court. Named a Super Lawyers Rising Star in Estate Planning for 2017 and 2018, Rachel assists business owners, corporate executives, and high net worth individuals and their families to protect their legacies from government and creditor interference through estate planning and wealth transfer techniques.