Thought Leaders: Revocable Living Trusts: What they do (and what they don’t)

When many people hear the word “trust” or “trust fund”, they envision a tool used by the ultra-wealthy to protect assets, minimize taxes, and provide for future generations. While it is true that certain types of trusts offer these benefits to the trust creator (“Settlor”), these trusts are irrevocable and not a practical tool for most people. 

A revocable or living trust (RLT) serves as a vehicle to transfer your assets upon death and is an effective estate planning strategy that anyone can utilize. When implemented correctly, an RLT offers the following benefits upon the Settlor’s death:

• Avoid Probate. Probate is the court-ordered process of transferring assets after someone dies. When assets are properly titled into a trust, probate is avoided. Unlike probate, trust administration is private, and may be less burdensome, time-consuming, and costly.

• Estate Tax Planning. Mechanisms can be employed to reduce estate and other taxes.

• Control. Unlike with a simple will, you can place greater restrictions on how and when your assets will be distributed. This may be desirable when you have younger beneficiaries, beneficiaries with special needs, or beneficiaries for whom you have money management concerns.

• Asset Protection. Upon your passing, you can choose for your assets to be held in sub-trust(s) for your beneficiaries. These trusts are irrevocable, and the assets are sheltered from the reach of certain adverse parties. For blended families, additional safeguards can also be applied to preserve assets for separate children, regardless of which spouse dies first. 

What RLTs do not do:

• Avoid, minimize, or otherwise alter taxes while the Settlor is living

• Offer asset protection while the Settlor is living

• Facilitate Medicaid or long-term care planning

• Only provide benefits for the rich 

This is not intended to be a comprehensive guide, and appropriate steps are required for an RLT to function as intended.  If you have questions about trusts, how they work, and whether a revocable living trust (or irrevocable trust) might make sense for your estate plan, it is advisable to seek guidance from an experienced estate planning attorney.