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More About Your Estate Plan

The revocable living trust is the basic building block of most estate plans. It’s the tool that allows your estate to avoid the expense, time consumption, and uncertainty of probate court, and it is the tool that can hold just about any of your assets.

While revocable living trusts are ubiquitous in the world of estate planning, it seems that many people are still confused about them, so we are going to clear up a few commonly asked questions.

What does revocable mean?

It means that you can “undo” the trust at any time. In almost all cases, it also means that you can amend or change the terms of the trust. Revocable trusts are the ultimate in terms of flexibility, so don’t worry if circumstances change down the road and you want to make adjustments to your plan. You can make any changes you want (with legal guidance, of course).

It’s a trust, so who controls it?

You do! Revocable living trusts are also known as grantor trusts. A trust is a grantor trust when the trust creator (“grantor”) is also the trust beneficiary. In the case of revocable living trusts, grantors (often joint grantors, since married couples often form these types of trusts) retain authority over the assets as trustees. In short, that gives them full, unfettered discretion over the management of the trust.

Are assets in a revocable living trust protected from creditors?

Generally speaking, no. In the vast majority of states, spendthrift provisions—the clauses that make trust assets inaccessible to creditors—are not generally enforceable for the grantor of a grantor trust (e.g. revocable living trust). In a few states, however, grantor trusts can gain asset protection benefits. Grantor trusts in these states are termed “domestic asset protection trusts,” and they require grantors to comply with very specific rules.

Now that assets are in the trust, what can I do with them?

That answer is simple. You can do anything you want with the assets! You are the trustee, so management of the trust is in your discretion. If you have cash in your revocable living trust, you can open brokerage accounts and trade stocks, bonds, and other financial products through your trust. You also have the option to hold your cash in regular bank accounts or in overseas accounts. In short, you have full discretion over the investment decisions inside your revocable trust.

One word of caution: If you have rental real estate, you probably need to add another layer to your estate plan. The reason is that rental real estate is sometimes classified as a “risky” asset and, therefore, needs to be insulated from the other assets inside your revocable trust.

Finally, it’s not necessary to put your retirement investments (e.g. 401(k) or IRA accounts) into your revocable living trust. The better course of action is to specify beneficiaries through your retirement plan administrator, which will still allow you to avoid probate.

Pull the trigger

We have a message for you if you haven’t yet created an estate plan for yourself: One day it will be too late. Right now you have the power and the opportunity to make some difficult choices that simply shouldn’t be left to your loved ones. If you are interested in meeting with an estate-planning attorney, please call our office, mention this article by name, and request an appointment. We normally charge $500 for Family Wealth Planning Sessions™, but if you mention this article, we will waive that fee. So don’t wait. Time is yours to use or lose!

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