Revocable Living Trusts

     Revocable Living Trusts (RLTs) are popular estate planning tools. The purpose of this article is not to provide a legal treatise on the subject of RLTs, but rather to introduce how they work, some of their benefits and drawbacks, and some important considerations when creating an RLT.

RLT Basics

     RLTs are written legal agreements involving three parties: the Trustmaker (also known as a Grantor, Trustor or Settlor), the Trustee and the Beneficiary. Initially, upon creation of the RLT, the Trustmaker, Trustee and Beneficiary are one in the same person. There can be, and often are, more than one Trustmaker, Trustee and Beneficiary at any given time. [Note: Depending on the law of their jurisdiction and their unique circumstances, a married couple may share one joint RLT or each may have a separate RLT.]
     After the Trustmaker and Trustee sign the RLT legal agreement, the Trustmaker funds the trust (i.e., retitles assets into the name of the RLT). This is a critical step, much like putting fuel into a brand new automobile. Once the RLT is signed and funded, the Trustee manages and distributes the trust assets for the Beneficiary according to the instructions in the written legal agreement.
     Later, if the Trustmaker/Trustee becomes incapacitated (as defined in the RLT agreement), then a successor Trustee steps in to seamlessly manage and distribute the trust assets as provided in the RLT's instructions. Since the Trustee holds legal title to the RLT assets for the Beneficiary, no Probate Court need interfere.
     Finally, upon the death of the Trustmaker/Trustee, the RLT becomes irrevocable and the successor Trustee manages and distributes the RLT assets for the Beneficiary(ies) according to the RLT's instructions. In most jurisdictions, no Probate Court need interfere in this process of transferring assets from the deceased Trustmaker to their Beneficiary(ies).

RLT Benefits

     While the benefits of RLT-based planning vary from jurisdiction to jurisdiction, the most commonly cited benefit is Probate Court avoidance. The three most commonly cited drawbacks to Probate Court are the potential for long delays, unnecessary costs and, because the court process is open to the public, unwanted publicity. Given the choice, most people would rather avoid any court process.

RLT Drawbacks

     As noted above, for an RLT to operate as designed it must be funded. If you are not meticulous about ensuring that your RLT has either present title to your assets or will have future title to them (e.g., life insurance proceeds), then your estate may not avoid Probate Court.
     Also, legal fees to create RLTs often are higher than the fees to create Will-based estate plans. Accordingly, in some jurisdictions the benefits of avoiding Probate Court are greater than in other jurisdictions.

RLT Considerations

     The selection of your successor Trustee is one of the key decisions you must make when creating your RLT. Common options include appointing a trusted family member or friend, a professional fiduciary, or even a combination of the two. There is no right answer, just the one that is right for you.
     Make sure your RLT incorporates flexible estate tax planning. Even if the federal estate tax is repealed, it could be easily reinstated. Note, too, that many states have imposed their own estate tax separate from the federal estate tax.
     Finally, only you know the strengths and weaknesses of your loved ones. Ensure that your RLT contains planning to protect the inheritance both for and from your loved ones. If you are divorced, then you will have special considerations regarding your ex-spouse and any mutual children.
     RLT planning can be a complex but worthwhile process to protect you, your loved ones and your hard-earned assets.