Revocable living trusts offer increased flexibility compared to traditional trusts. When viewed through the broader lens of effective estate planning, revocable living trusts can offer better management of assets, incapacities, and taxes. Overall, they provide certain unique benefits, making them a lucrative alternative to typical trusts.
In this guide, we’re going to look at the key features and benefits of revocable living trusts along with some important considerations. Everything isn’t black and white, however. Depending on your unique circumstances, some details might differ. It’s always best to consult with a Phoenix estate planning lawyer to understand what to expect and what are your best options.
As the majority of Phoenix trust attorneys will tell you, revocable living trusts offer increased flexibility. They are called so because they are revocable. What this means is that they can be modified or entirely revoked by the grantor during their lifetime. This allows for flexibility not only in managing assets but also in making changes as circumstances evolve.
The popularity of revocable living trusts stems mainly from the fact that they keep you from locking in the guidelines and instructions and you don’t need to go to great lengths just to make minor adjustments.
It’s very likely that as circumstances evolve, there will be a need to adjust several things. A revocable living trust helps you do that comfortably.
Another key advantage of a revocable living trust is that it helps you bypass the whole probate process. Assets held in the trust don’t go through the probate procedure as they do in typical trust setups. This saves time and costs while maintaining the privacy of beneficiaries (more on this later).
Get in touch with a probate lawyer Phoenix to fully understand how you can avoid probate entirely in your situation.
Revocable living trusts allow the grantor to serve as the trustee. This means they can retain the control and management of the assets placed in the trust. Though it might not be advantageous in all situations, more often than not, it allows for seamless asset management while ensuring continuity in the administration of the trust.
Better asset management, in fact, is one of the most sought-after features for which people set up revocable living trusts instead of normal trusts.
A revocable living trust can provide mechanisms for managing the grantor’s assets in the event of their incapacity. It allows for the appointment of a successor trustee who can step in and manage the trust’s assets without the need for court intervention.
Revocable trusts can make planning for future mental or physical incapacity significantly easier.
Wills become public records after probate. That’s not the case with revocable living trusts—As we just mentioned above, these trusts can completely skip the probate process.
This quality makes them an excellent option for situations where privacy is a requirement.
Setting up a revocable living trust offers privacy since all of its terms and distributions don’t need to be made public. All beneficiaries, therefore, can remain private.
Estate Tax Planning
Though it depends on the jurisdiction and the value of the estate, it’s common knowledge that a revocable living trust can help with estate tax planning.
Certain provisions can be used while setting up a revocable living trust that can potentially minimize tax liabilities. The three main provisions are:
1. In most cases, a revocable living trust does not provide direct estate tax savings. During the grantor’s lifetime, the assets in the trust are still considered part of their taxable estate. However, by utilizing specific estate planning strategies within the trust, such as credit shelter trusts or marital deduction planning, it may be possible to minimize estate tax liabilities for larger estates.
2. Revocable living trusts are designed to be “grantor trusts,” meaning the grantor is considered the owner for income tax purposes. As a result, income generated by the trust’s assets is typically reported on the grantor’s individual tax return. There are no separate income tax filings or additional tax benefits associated with the trust itself.
3. Upon the grantor’s death, the assets held in the revocable living trust generally receive a step-up in basis to their fair market value. This means that the beneficiaries who inherit these assets can potentially sell them without incurring capital gains taxes on the appreciation that occurred during the grantor’s lifetime. This step-up in basis can provide potential tax benefits to the beneficiaries.
Continuity of Asset Management
Revocable living trusts also help in ensuring efficient continuity of asset management. Upon the grantor’s death or incapacity, the successor trustee takes over the management and distribution of the trust assets. This requires no additional paperwork or red tape—And it’s generally a smooth transition.
Revocable living trusts ensure continuity in the administration of the estate without any lapses even in the event of the grantor’s death.
Revocable trusts are flexible and offer the chance to avoid probate. They might have several benefits, but it’s also important to set them up correctly to avoid disputes or complications later on.
Trying to find a revocable living trust lawyer? You might need to do little more than Google “revocable living trust lawyer near me.” Good revocable trust lawyers are not easy to come by. Limit your search to those who have the relevant experience and ensure that you double-check their track record. Estate planning will likely be done only once, and it’s important to do it right.