A revocable living trust is an inter vivos trust, in which the grantor reserves the right to revoke and amend the trust during the lifetime of the grantor or while the grantor maintains the necessary capacity to make those changes. After the death of the grantor or if the grantor loses capacity, the trust becomes irrevocable. Revocable living trusts are complex and the benefits and disadvantages of these trusts should be discussed with an experienced attorney before an individual chooses to create one.
Role of a Revocable Trust
A revocable living trust is just one tool used as part of an overall comprehensive estate plan. A trusts lawyer in DC should review the needs and the goals of a client on a case-to-case basis to determine if using a revocable living trust would be beneficial to that client as part of their plan. Some of those considerations may include the initial startup of the revocable living trust, whether transferring real estate into or out of the trust will trigger any other ramifications and whether the individual is to continue with using the administrative procedures necessary to properly administer the trust during their lifetime.
The common triggers for using a revocable living trust include owning real estate in multiple jurisdictions and also if an individual has privacy concerns.
Amending and Revoking
A revocable trust can often be amended in part and revoked in its entirety. The trust can be further funded with additional assets or assets can be removed from the trust during the grantor’s lifetime while they retain capacity.
Often the trust provides that the trust shall be administered for the benefit of the original grantor during his or her lifetime so that those assets can be used in whole or in part to benefit and support the grantor. During the grantor’s lifetime, the trust continues to use his or her personal social security number and all income on assets in the trust are taxed on the grantor’s personal income tax returns.
After the death of the grantor, the revocable living trust is assigned a new tax identification number and any income would be taxed on a separate fiduciary income tax return. The assets that have been pre-funded into a revocable living trust are considered in the grantor’s control on the date of his or her death, meaning that all of the assets of the revocable living trust would be includable on the estate tax return either for DC or federal estate tax return, if necessary.
The assets that have been pre-funded into the revocable living trust, however, do avoid probate and therefore the use of a revocable living trust is frequently used when individuals own real estate or parcels of real estate in multiple states or multiple jurisdictions.
Revocable living trusts are often misunderstood and there is often a lot of misinformation that has been circulated about them, making them more popular than may be necessary, especially in the District of Columbia.
Advantages for Property Management
A revocable living trust can provide a mechanism for managing all of someone’s assets under one plan. Any assets that have been pre-funded into a trust can be managed by a trustee. In some cases, the initial trustee is the original grantor. In other cases, it is another individual who has the power to manage the property pursuant to the terms of the trust documents.
In addition to property management, a revocable living trust may be beneficial to avoid probate in multiple states or jurisdictions. For example, if an individual owns real estate in multiple jurisdictions, transferring the real estate holdings into a revocable living trust may avoid the necessity of initiating a probate procedure in each jurisdiction.
Another advantage to using a revocable living trust is that the assets that are pre-titled into the revocable living trust may prevent the necessity of a guardian being appointed for an individual if they have lost the requisite capacity to make their own decisions.
Transferring Property Into the Trust
Property that is transferred into the trust can be controlled by the trustee. Transferring property into a trust may allow a third party to manage a grantor’s assets on their behalf. To allow the trust provisions to govern an asset, the asset must be retitled into the trust. Not all types of assets are good candidates for funding a trust. It is prudent to speak with an attorney to assist with deciding which assets should be used to fund a trust.