A revocable trust is a legal agreement that you create to safeguard your assets and pass them along to heirs when you die. Property is titled in the name of the trust and managed by a Trustee. In most cases, you will be the designated Trustee, but you can appoint someone else to manage the trust if desired.
When you create a revocable trust you will be identified as the Grantor. Whoever is charged with managing trust assets is identified as the Trustee. Upon death, the person that takes over trust management duties is the Successor Trustee.
The term ‘revocable’ means the document can be modified or terminated at any time. Modifications would occur if you wanted to name a different successor trustee or when property is added or deleted from the trust.
The majority of trust agreements let you withdraw cash or assets at any time without penalty. In the event that you become incapacitated, the successor trustee can take over trust management duties.
When assets are unprotected, a court-appointed guardian will be given temporary control over assets. This person is usually a spouse or family member, but might also be an estate attorney or financial professional. Guardians are responsible for carrying out personal or business financial tasks.
Upon death, the successor trustee is charged with reconciling your estate by clearing outstanding debts and paying taxes. Upon reconciliation estate assets are transferred to beneficiaries as per directions provided in the revocable trust.
When setting up a living trust it’s important to understand that you need to fund the trust by transferring titled property and cash assets. It’s nothing more than a formal legality for recording ownership of the property. However, if the task isn’t performed all property that isn’t transferred has to endure the probate process.
It’s very beneficial to work with an estate attorney when transferring assets. Certain types of property can cause tax problems and shouldn’t be transferred. Others can take advantage of less complicated estate planning strategies that provide similar results.
People often believe that by transferring assets to revocable trusts will eliminate estate tax, but this is not accurate. Property held in the trust is included in your taxable estate and subject to estate and inheritance taxes.
Choosing a trustee or successor trustee is a very important decision. Considering this person can take over personal finances and have access to sensitive information, it’s apparent they need to be trustworthy. They also need to be someone that gets things done because there can be consequences if trusts aren’t reconciled properly and in a timely manner.
Most people designate their self as Trustee and select relatives, friends, or financial advisers to assume trust management duties upon death. It’s best to appoint someone that is qualified to carryout tasks without causing friction amongst relatives.
It’s not easy serving as a Trustee. Duties include holding trust property, investing in trust assets, and making tax decisions for the trust. Trustees are also responsible for keeping records of all trust transactions, preparing statements for trust beneficiaries, and filing tax reports.
A revocable trust should be part of an overall estate plan that includes a will and testament and power of attorney forms. Some people will also require a family trust or child trust fund.
The team of estate attorneys at Craton, Switzer and Tokar can help you engage in strategic estate planning and determine which methods offer the greatest protection for you and your loved ones. We invite you to contact us today to talk about your needs and goals or visit our estate planning and probate blog to learn more about available options.