What is a Revocable Living Trust?
How does a revocable living trust work? This question is an important matter that you can discuss with the experienced Texas estate planning attorneys at Ibekwe Law, PLLC, as soon as a potential need arises. If the question of how living trusts work in Texas is on your mind, you may feel overwhelmed. A revocable living trust, or living trust, is a legal document created during a person’s lifetime that permits a chosen trustee to manage that individual’s assets to benefit the current and future beneficiaries.
The dedicated Texas estate planning attorneys at Ibekwe Law, PLLC (512-505-2753) recognize just how serious questions related to living trusts are. Our team is committed to finding answers that work for you or your loved one who may need a living trust.
How Does a Revocable Living Trust Work?
Most people think of a last will and testament as the most common way to pass an estate on to beneficiaries. Another way is to create a revocable living trust. Depending on your particular circumstances, a revocable living trust may be the best choice for your estate plan.
To create a revocable living trust, a person (the grantor) signs a trust agreement naming a person(s), a corporation, or both as trustee to manage the trust. In Texas, the grantor and the trustee can be the same person. If you name a trust company or bank as trustee–instead of an individual, it ensures that a professional trustee will always be available to act in the best interest of a grantor.
A revocable living trust usually allows property to be managed for the grantor’s benefit. Usually, the grantor retains certain rights over the trust during their lifetime, including:
- the ability to direct the trustee to give away all or any portion of the trust property;
- the ability to revoke or change the living trust whenever they want;
- the ability to make discretionary distributions of income and principal to the grantor and/or the grantor’s family
A revocable living trust acts as a last will and testament when a grantor dies, and property is distributed to beneficiaries following the trust document.
Generally, it’s best to fund the trust while the grantor is living, rather than when the grantor dies; that ensures continuity of asset management and financial support, should the grantor face a disability.
To fund a trust during a grantor’s lifetime, you must title real property, securities, and other assets in the name of the trust. Retitling property is not required for trusts funded at death when the probate estate is “poured over” into the trust. However, funding a trust at death may not avoid the necessity of probate.
Benefits of Revocable Living Trusts
1. Continuity of Management During a Disability
A revocable living trust is a great way to plan for your property to be used for your benefit– if you become mentally or physically incapable of managing your affairs.
The continuity of management is possible when a financial power of attorney is signed. Still, third parties (banks, brokers, and transfer agents) often have more trouble dealing with a power of attorney than a trust agreement. And, if the designated agent cannot act, a financial power of attorney will not be helpful.
Suppose you become disabled and don’t have a revocable living trust or a power of attorney. In that case, you may face a lengthy and expensive court proceeding to appoint a guardian for you before your property can be used for you (or your family).
Even after a guardian is named, ongoing court supervision for managing investments and disbursements is usually required.
With a revocable living trust, out-of-state individuals or trust companies can administer your property at death if you choose. Also, it is usually easier to make changes to a revocable living trust than to a will.
3. Avoiding probate
Probate is the court process required to determine whether a last will and testament are valid. Because probate can be costly and time-consuming, avoiding probate is one of the benefits of a revocable living trust. For example, if you have homes in more than one state, avoiding probate may be a significant benefit because you can avoid more than one probate proceeding. However, every state has a different probate process, so consult a local attorney.
4. Immediate Availability of Assets at Death
Revocable living trust assets are available immediately after death to pay estate taxes, administration expenses, and debts without waiting for a probate court decree. If the trust is funded before death, the property in the trust remains in the trustee’s name before and after the death. It is immediately available for liquidation should the need arise.
5. No Issue with Missing or Destroyed Originals
Original wills must be provided in court to avoid the suspicion that the will was revoked. Usually, one original must be produced at death. Because revocable living trusts avoid probate, many originals may be signed, and one original can validate property held in the trust at death. A revocable living trust can simplify property transfer at death if the original will cannot be found or is destroyed.
6. No Interference with Investment Management
A primary benefit of revocable living trusts is providing uninterrupted investment management should the grantor become disabled and after the grantor dies. If you previously transferred assets to the trust, you don’t need to retitle securities after death. Additionally, depending on the grantor’s estate’s cash needs and investment objectives, there may be no need to create a new investment strategy.
Disadvantages of Revocable Living Trusts
A few disadvantages to revocable living trusts arise from the different treatment of trusts and wills under specific property laws.
1. Funding Your Trust
In addition to creating your trust, you must take action to fund it. You must change beneficiary designations on accounts owned by the grantor. You must change your property to a trust’s name to include it in a revocable living trust, which may be difficult and involve costs like filing fees. As part of your estate plan, using a pour-over will transfer all additional assets into your revocable trust, so no assets have to go through probate.
2. Adapting to Changed Circumstances
The grantor must be sure to update the provisions of a revocable living trust as things change.
SEEK THE PROFESSIONAL LEGAL GUIDANCE OF AN EXPERIENCED ESTATE PLANNING ATTORNEY
Trusts are very complex. If you have concerns about how trusts work, seeking professional legal counsel is well-advised. The experienced Texas estate planning attorneys at Ibekwe Law, PLLC understand your cares and are dedicated to helping you find the most suitable path forward, given your circumstances. For more information, please do not hesitate to contact or call us at 512-505-2753 today.