What is a Revocable Living Trust?
A revocable living trust (“RLT”), sometimes referred to as a revocable trust, living trust, or even a “loving” trust, is a legally recognized private agreement which allows one or more adults to manage, own and transfer property for their own benefit, and ultimately for the benefit of others.
An RLT is often created by a single person or surviving spouse as to their own property, or by a married couple as to their separate and joint assets. However, an RLT can also be used as a private contractual and property arrangement between same sex couples, unwed couples, and even siblings or business partners.
The norm for an RLT is for the person who creates the trust, known as the trustor, grantor or settlor, to also serve in the fiduciary capacity of trustee, who manages and legally owns the trust property. Initially, the person who creates the trust is also the current beneficiary of the trust, and can utilize the trust assets and income as needed. However, the RLT will spell out further directions and restrictions on trust assets and income upon the incapacity or death of the trustor.
Historically, RLTs were the best way to organize and plan ahead for “marital deduction planning,” designed to minimize or avoid the federal and some states’ estate tax on a decedent’s property. In 2012, with the individual effective federal estate tax exemption amount at $5,000,000, and with many states having repealed their own estate tax, this is theoretically of lesser concern. However, most of us are going to live to 2013 and beyond, and due to uncertainty of estate tax planning laws which will then be in effect (i.e., repeal of the so-called “Bush Tax Cuts”), marital deduction planning and variations thereon have not completely gone out of use.
More modern RLTs are also designed to provide asset protection planning to the ultimate beneficiaries of the trust, who are often family members or close family friends. Planning ahead for your family with “dynasty” provisions and other techniques can make your RLT useful to multiple generations, while still providing flexibility to your future beneficiaries.
Legal and estate planning counseling, versus word processing and document assembly, are the keys to establishing a successful RLT. Know your legal rights about the use and availability of trusts to meet your and your family’s needs and goals.