Revocable Living Trusts in Maryland
A revocable living trust is a tax neutral document that uses the grantor’s, or the settlor’s, tax identification number during the grantor’s lifetime. Any income on trust assets is reflected on the settlor’s personal income tax return. If you, or someone you know, is looking to establish a revocable living trust, a Maryland trusts lawyer can help.
Trust Settlors, Trustees, and Assets
A revocable living trust in Maryland is an agreement between a trust settlor and a trustee, and can be amended, revoked, funded or defunded during the settlor’s lifetime. The creation of a revocable living trust, though, is not enough to govern assets. Assets need to be funded into the trust for the provisions to govern them, meaning the assets must actually be retitled into the name of the trust. For example, if a settlor owned real estate, the real estate would need to be re-deeded into the name of the trust and have the trust as the owner.
A revocable living trust is revocable while the settlor is alive and maintains the required capacity to make changes, however, at his or her death or when the required capacity is lost, the trust becomes irrevocable.
When the trust becomes irrevocable, a successor trustee may take over to continue the administration of the trust if the provisions provide for the assets to be continually held in trust or distribute the trust after the grantor’s death pursuant to the provisions.
Misunderstandings
When a revocable living trust is prepared, the common misunderstanding is that it is only necessary to prepare the trust alone. A revocable living trust is always prepared along with a pour-over last will and testament. The idea of a pour-over last will and testament is that any assets that have not been pre-funded into the revocable living trust go through the probate administration process. The will states that the assets of the estate are then “poured” or funded into the trust.
It is very common, either by mistake or on purpose, that not all assets of a decedent are funded into a revocable living trust. There are some assets that are often not recommended to fund trust, such as tax deferred retirement assets or vehicles.
Speaking with an attorney regarding the creation of a revocable living trust, whether it is a good fit for your overall comprehensive estate plan and what assets should be used to fund the trust may be helpful as you begin to consider your estate planning needs.
Creating a Revocable Trust
There are three elements in the creation of a revocable living trust:
- donative intent
- delivery of property to the trustee
- acceptance of the trustee of the responsibilities for managing the trust.
The trust agreement manages a number of different factors. Revocable living trusts often address the grantor’s reserved powers and outlines the trustee powers. Revocable living trusts also name an individual to serve as a successor trustee in the event that the original trustee or the initial trustee can no longer serve.
Revocable living trusts often describe how income and principal will be distributed. Revocable living trusts describe how the assets will be managed during the settlor’s lifetime and then after his death. For example, some revocable living trusts include provisions that at the death of the grantor, the trust is terminated and all of the assets of the trust are distributed to the named beneficiaries.
Other trusts require that the trust be maintained in further trust for the beneficiaries and then will describe at what ages those beneficiaries can receive distributions of the principal of the trust. Alternatively, a trust may hold the trust assets in trust for several generations and describe how the trust assets are to be managed.
Advantages of Revocable Living Trusts
When preparing a revocable living trust, a pour-over last will and testament is also prepared. The concept of a pour-over last will and testament is that any assets that have not been pre-funded into a revocable living trust flow through the decedent’s probate administration and are poured over into the revocable living trust at the conclusion of the probate proceeding.
One of the advantages of using a revocable living trust instead of a standalone last will and testament is that if a decedent or an individual owns property in multiple jurisdictions, those properties can be pre-funded into the trust during the grantor’s lifetime. Therefore, it is possible to avoid probate at each of those jurisdictions.
For example, if an individual owns real estate and lives in Maryland and also owns real estate in the District of Columbia and both of the properties were re-deeded into the trust, then probate in both Maryland and the District of Columbia may be avoided.
For more information about the potential disadvantages of a revocable living trust, visit the following page.
Avoiding Probate
Avoiding probate is another benefit of using a revocable living trust for individuals. In addition, a revocable living trust allows for some privacy, because the Maryland probate process is a fairly public procedure. Anything that is filed with the Register of Wills becomes part of the public record, whereas the trust document does not become part of the public record. Whether or not to avoid probate is a decision made on a case by case basis.
A revocable living trust allows for a streamline management of assets. When an individual owns multiple assets a revocable living trust offers a more streamlined vehicle for one person to be able to manage all of those assets consistently.
