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Overview of a Revocable Living Trust

Understanding Trusts, Types, and Purposes

Estate planning is crucial. One estate planning vehicle worth considering is a revocable living trust. The first step in the process of determining whether establishing a revocable living trust is the proper course is understanding the essential elements of this type of trust.

Three Primary Reasons for Establishing a Revocable Living Trust

The reasons a person may need a revocable living trust are unique to his or her situation. However, there are three primary, common reasons why an individual may desire to establish a revocable living trust.

The first primary reason to establish a revocable living trust is to provide for loved ones but to protect them from their own thoughtless acts when it comes to finances. The reality is that oftentimes when an individual obtains money through the estate process, those funds are spent quickly and even irresponsible. A revocable living trust lessens the likelihood that this reckless use of funds occurs.

The second primary reason to establish a revocable living trust is avoiding the probate process. The probate process can be time consuming and expensive. By eliminating the probate process, the beneficiaries of the trust save time and money.

The final primary reason to establish a revocable living trust is to lessen tax obligations. Probating an estate is not only expensive and time consuming in and of itself, it also oftentimes results in a sizable tax liability.

How to Fund a Revocable Living Trust

There are a variety of ways in which a revocable living trust can be funded. Financial accounts of all types can be included in a trust. These include bank account and investment accounts.

Real estate can be included in a revocable living trust. This can include residential as well as commercial property. An estate lawyer is experienced in assisting a person in identifying what property can and should be included in a revocable living trust.

Retaining a Lawyer for a Revocable Living Trust

There are estate attorneys that focus on creating revocable living trusts. A qualified attorney can schedule an initial consultation with a prospective client to discuss that individual’s estate planning goals and objectives, including whether establishing a revocable trust is the proper course to take. An estate lawyer does not charge a fee for an initial consultation.

Understanding trustsTo 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.