A Revocable Living Trust is a common estate planning tool that has many benefits. As a revocable trust, the person creating the trust, the grantor, retains the ability to change or rescind the document at any point. The document is called a “living” trust because it is applicable throughout one’s lifetime.
If an individual wants to maintain full control over his or her property, he or she may also choose to remain the holder of the title as trustee. The grantor will serve as both the initial trustee and the initial trust beneficiary. The designated trustee will hold “legal title” of the assets in the trust. The grantor transfers his or her assets into the trust and then utilizes the trust during the grantor’s lifetime.
Another individual or entity, such as a bank, can be appointed as the successor trustee to manage and protect assets and to distribute assets to beneficiaries upon one’s death. If the original trustee becomes sick or disabled, the successor trustee will step in to manage the trust assets.
For the purposes of taxes, a revocable living trust is treated as an asset of the grantor during his or her lifetime. There is no separate tax id number (the grantor’s social security number is used for trust accounts) and any income earned by the trust is reported on the grantor’s tax return. Upon the death of the grantor a separate trust tax id number and tax return may be required. For purposes of estate taxes the revocable living trust is considered a part of the decedent’s estate, and therefore, an estate tax applies.
A revocable living trust can avoid the need for any court probate proceedings when properly funded. A revocable living trust also provides additional privacy to anyone who wants to keep certain information or assets private. A trust is not normally made public, whereas a will is put into the public record once it passes through probate. Consulting with an attorney can help determine the best methods to ensure protection of assets in individual cases.