While a will and testament is an essential part of estate planning, your assets might require more comprehensive protection, especially to ensure a seamless transition of wealth after your death. To do this, skilled estate planning attorneys frequently recommend establishing a revocable living trust.
Table of Contents
What Is a Revocable Living Trust?
It’s a written agreement that creates a trust and contains provisions for the management and distribution of your property. The agreement gives you the power to:
- Revoke the trust
- Amend or modify it
- Add or withdraw property from it
- Receive income from it
While you’re alive, you’re the primary trustee, but you also may designate another person or a corporate entity such as a bank or trust company to act as a co-trustee or a successor trustee, so that the management of your trust won’t be interrupted by your disability or death. A revocable trust can also provide for the management of your assets in the event you suffer a disability.
Upon your death, the trust cannot be changed, and the property is held and distributed to your heirs. This eliminates the need for probate administration.
What Is Probate?
Probate is the legal process by which the probate court makes sure that a deceased person’s debts are paid, and their property is distributed according to their will. The probate court oversees the administration of your estate, which includes payment of bills, the gathering of assets, filing tax returns, and distributing assets according to the will. Also, the probate court proceedings ensure the proper transfer of legal title to each asset to your family.
However, many people choose to establish a revocable trust because it takes time to process an estate through probate—and usually, distributions of property from the estate can’t be made until all claims against the estate are filed, which might take six months or more from the commencement of the probate proceedings. Your heirs also have no control over the assets during this time, which can add complications and frustration to an already difficult time.
Does joint ownership of assets avoid probate? No. When one joint owner dies, ownership automatically transfers to the surviving joint owner. But when the second owner dies, or if both owners die at the same time, the property must pass through probate—and there may be additional tax penalties.
Additionally, all probate files are part of public record and open to public inspection. This means anyone can find out who you owed, what you owned, and who received your assets.
Questions to Ask About Revocable Living Trusts
This estate planning tool isn’t something you want to do with an online form. A trust offers many layers of protection and management but to make sure it’s created to your wishes, it’s vital to place your confidence in an estate planning attorney who acts as a reasonable advisor, considering every angle and providing solid answers to questions. Here are just a few common considerations.
Who should be my trustee?
Managing trust assets, maintaining records, distributing income and assets—these and other tasks of the trustee require considerable time and knowledge. A spouse is usually the first choice, with both of you acting as co-trustees. Family members and friends all have pros and cons in this role, as do corporate entities such as lawyers, banks, and trust companies. Your estate planning legal team can help you determine the best trustee choice for your needs.
How do I transfer assets into the name of my trust?
There are many assets to consider, each with particular stipulations, including but not limited to:
- Registered property (like your home) and property insurance
- Non-registered property (household property, objects of art, and other items)
- Stocks and bonds
- Pension benefits and IRAs
- Other investments, such as commercial real estate or out-of-state real estate
During the development of the trust, your estate planning attorney details the transfer process, which assets might specifically benefit from an asset protection trust, and how to administer others.
Do I still need a will in Kentucky?
By itself, a revocable living trust isn’t sufficient to accomplish your goals of reduced probate expenses, so most experts advise integrating a will into your estate plan as well. This is sometimes referred to as a pour-over will. In your consultation, an estate attorney outlines the rationale for having a will.
Do I need a power of attorney in Kentucky?
In many circumstances, yes. A power of attorney and the pour-over will are companions to the revocable living trust to facilitate the complete funding of your trust during your lifetime. Keep in mind that a power of attorney and a durable power of attorney have different responsibilities—this is an essential point to cover with your estate planner based on your specific needs.
What are the tax implications?
It depends on whether you and/or your co-trustee retain the assets or if someone else does. A certified public accountant can help with this matter.
How Expensive Is a Revocable Living Trust to Establish?
Compared to full probate proceedings, a revocable living trust is not that expensive. How much you invest in this process depends on how complicated your estate plan is and the type and amount of your assets. Typical costs associated with a revocable living trust involve:
- Preparation and registration of documents to transfer title of assets to the trust
- Acquisition and subsequent investment or reinvestment of assets in the name of the trust
- Reporting of income and expenses on a fiduciary income tax return, if necessary
Ensuring your future and that of your loved ones deserves a partnership grounded in education and trust, so take your time when choosing an estate planning attorney who can best fulfill your wishes.