A revocable living trust is not just a tool that holds property. It’s the glue that holds your family together! The only question is do you want that glue to be the cheap nonadhesive stuff you buy at the dollar store OR the NASA grade stuff that will hold anything together?
Why a Revocable Living Trust?
Control, control, control. With a revocable living trust (RLT) you’re in the drivers seat. This means you decide how and when your child or children receive their inheritance. This is huge because unlike other probate avoidance tools like a transfer on death deed for instance, with a RLT you decide if your child receives their inheritance at 18, 21, 25, 35… years of age. Further, with a RLT you can set conditions and safeguards to property distributions that you cannot otherwise do with a will or transfer on death deed.
For instance, if your child struggles with drug or alcohol addiction, has creditors lined up outside their door, is bad with money, gambles too much, whatever, with a RLT you can protect your child’s inheritance via a spendthrift provision in your trust. It’s that simple.
5-Things You Should Do Before Creating Your Revocable Living Trust
Button-up these 5-things and you’ll be light years ahead of everyone else:
1. Who do you want to be your successor trustee?
The successor trustee is the person who inherits the job of trustee after you die. This person’s job is to administer your trust and ultimately distribute trust property to your named beneficiaries. This might be the most important decision you make when it comes to creating your revocable living trust. Why? Because the trustee has broad discretion and responsibility and can be the difference between a nightmare Freddy Krueger-like situation, and heaven on earth. Hence, pick someone you really trust and know you can count on.
2. Pick an Alternate Successor Trustee
No one has a crystal ball. Hence, you cannot predict if your successor trustee will outlive you. This is why its always a good idea to name an alternate successor trustee in the event your first choice passes away before you or is incapacitated at the time they are to assume the role of trustee of your RLT.
3. Talk to Your CPA
A Trust attorney is not synonymous with a Tax Attorney. At best a trust attorney (I’m sure there are exceptions to this rule) will be able to give you basic information when it comes to the tax implications of putting certain assets into your trust and/or making your trust the beneficiary of such assets. Think 401k, IRAs, etc. It is always good practice to consult with your CPA before or during the trust making process to make sure you’re not potentially creating a nightmare situation whereby your estate ultimately pays the price.
4. Do you want Asset Protection?
A revocable living trust as its name implies, is revocable, and because it’s revocable it offers nothing in the way of asset protection. It keeps the property you put into the trust out of probate but does not shield it from lawsuits. It also gives you broad control of how and when this property is distributed.
A RLT can also provide minimal protections when it comes to your beneficiaries’ creditors, but when it comes to you, the trust creator, there are really no protections. The rule of thumb is this if a creditor can come after you then they can come after the property in your revocable living trust.
Therefore, if you are looking for asset protection you might want to consider an irrevocable trust or domestic asset protection trust or using corporate structures like LLCs to protect assets from potential creditor lawsuits and judgments.
5. What Property Goes Into the Trust?
Intuitively you might want to put everything you own in your RLT and why not, keeping everything under one roof seems a whole lot easier and less complicated. The problem, however, is that transferring certain property into your trust or making your trust the beneficiary of certain assets (401ks, IRAs, etc.) can have serious tax implications.
Additionally, when it comes to vehicles, bank accounts, etc., it might be more sensible to use Payable on Death (POD) Designation. A POD is hassle free and streamlines things for your successor trust and ultimately your loved ones.
Final Thoughts
There is no secret sauce when it comes to validating a RLT. It’s pretty much the same everywhere. However, when it comes to making a lukewarm trust versus a piping hot knock it out of the ball park trust, it’s all about preparation and knowing what you want. By definitively answering the five (5) questions outlined above you are well on your way to creating a SOLID REVOCABLE LIVING TRUST. Happy hunting.
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