People often harbor certain misconceptions about trusts. They paint with a broad brush without recognizing that there are a number of different types of trusts that serve different purposes.
With this in mind, let’s look at what a revocable living trust can and cannot accomplish.
Revocable Living Trusts
Revocable living trusts are very useful, but they have limitations. A primary reason why you may want to utilize a revocable living trust would be to facilitate the transfer of your assets outside of the process of probate.
When you use a will to state your final wishes regarding the distribution of your property, the will must be admitted to probate. During probate the court supervises the administration of the estate.
Probate can be costly and time-consuming. The heirs to the estate do not receive their inheritances until the estate has been probated. This can take a number of months in simple cases. More complicated cases can take considerably longer.
When you arrange for the transfer of your monetary resources through the terms of a revocable living trust, the asset transfers take place outside of the process of probate.
Think about the name of this type of trust: it is revocable. You can revoke or rescind the trust at any time, so you continue to control the assets that you have conveyed into it. In addition to this, you can act as both the trustee and the beneficiary while you are still living. You can control investments and give yourself cash distributions as you see fit.
Because you have all of this ongoing control, assets that have been conveyed into a revocable living trust would be looked upon as part of your taxable estate by the Internal Revenue Service, and the resources would be fair game for claimants seeking redress.
A revocable living trust will not protect family wealth during your lifetime, although it can provide significant protection after your death. However, there are also different types of trusts that can be used to protect assets and/or mitigate estate tax exposure. These would be irrevocable trusts. You surrender incidents of ownership when you create an irrevocable trust. You cannot rescind this type of trust, and for the most part you cannot act in an administrative capacity.
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In this post we have provided some basic information about revocable living trusts. If you would like to gain some in-depth knowledge, we have a resource that is available to you.
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