The term revocable living trust typically refers to a trust that is created during the lifetime of a particular individual, according to the American Bar Association. At its essence, a revocable living trust is based on a legal instrument through which certain assets are transferred to the ownership of the trust itself.
A trustee is designated within the trust instrument itself. The trustee is the individual designated to manage the affairs of the trust on behalf of the beneficiary or beneficiaries. The trust instrument also identifies that individual or those individuals who are the beneficiaries of the trust. As the term suggests, a beneficiary is an individual who benefits from the trust. The creator of the trust can be a beneficiary of the trust. Successor beneficiaries can be designated who enjoy the benefits of the trust after the initial beneficiary dies.
A key element of a revocable living trust is that the creator is able to make changes to it during the course of his or her lifetime. The creator can change any of the specific terms included within the instrument. Indeed, if the creator so desires, he or she can eliminate the revocable living trust.
Probate and a Revocable Living Trust
One of the primary reasons for the creation of a revocable living trust is that it permits the probate process to be bypassed upon the death of the creator of the trust or the death of a trust beneficiary. Bypassing probate saves time and money in the final analysis.
Taxes and a Revocable Living Trust
What a revocable living trust does not do is permit tax avoidance. Although probate may be avoided with this type off trust, taxes must be paid as owed.
Revocable Living Trust Versus Irrevocable Living Trust
As the monikers associated with these two types of trusts indicate, revocability is the key distinction between these two types of trusts. The creator can terminate a revocable derivation. On the other hand, once a creator appropriately executes an irrevocable trust instrument, that trust generally cannot be altered or terminated.
A skilled, experienced Pennsylvania estate attorney can assist a person in deciding on whether or not a revocable living trust is a suitable estate planning structure. Typically, there is no charge for an initial consultation to discuss a revocable living trust.
To start, there are two different types of trusts, either living trusts or testamentary trusts. A living trust is created during the person’s lifetime, whereas the testamentary trust is established after death as part of the will.
When it comes to living trusts, they can either be revocable or irrevocable. A revocable trust can be changed or modified at any time; you stay in control of all the assets and change the terms whenever you choose. An irrevocable trust does not allow the same flexibility; changes cannot be made without the beneficiary’s consent. The assets in the trust are no longer yours but the up side is that the appreciation of assets in the trust are not subject to estate taxes.
Other more specific types of trusts include:
Irrevocable life insurance trust: removes life insurance from taxable estate to help pay estate costs and provides heirs with cash for various reasons. To do this, you must surrender ownership rights of the policy but the benefits sometimes outweigh the resulting policy restrictions.
Credit shelter trusts (“Bypass trusts”, “Family trusts”): this type of trust focuses on mitigating taxes. The will dictates an amount to be bequeathed that is up to but not over the estate tax exemption. The rest of the estate is transferred to your spouse tax free. Even if the estate grows within this type of trust, it is always free of estate tax.
Generation-skipping trusts (“Dynasty trusts”): this allows tax free transfer of a large amount of money to family two generations your junior, which is usually grandchildren.
Qualified personal residence trusts: this trust removes primary or vacation residence from the estate. Those who expect their properties to appreciate in value may find this to be a useful trust.
With so even more options available, it is wise to partner with an experienced Doylestown estate lawyer. Wills, trusts and estates can become extremely useful tools but require the information and experience of an estate lawyer. At the Law Offices of Michael Kuldiner, P.C., we can partner with other planning professionals to ensure your estate plan is tailored to fit your needs. Call today to set up a consultation with a Bucks County estate planning attorney, (215) 496-8171.