What is a Revocable Living Trust?
A Revocable Living Trust (abbreviated as RLT), is a document used in order to provide for the management of your assets both during your life and after your death. A RLT is a flexible form of estate planning, which can help your family avoid the probate process after your death if used to its maximum potential. The RLT is a more sophisticated estate planning strategy than only using a Last Will and Testament, but it is not the most complex strategy. Many individuals think that the use of a RLT (or any other type of trust) is reserved only for the wealthy elite. However, the reality is that the RLT is one of the most frequently used methods of estate planning. Many individuals favor a RLT because, while it costs a bit more upfront, it can save tens of thousands of dollars (or more) in probate costs, it can be used to determine what happens in the event of your incapacity, and it is highly flexible.
What does a RLT Consist of?
There are actually many different types of revocable living trusts. However all RLTs have certain common components. The document that creates a RLT is known as the Trust Agreement. In addition to many of the provisions included in a Last Will and Testament, a trust agreement will have provisions establishing the trust (or in certain cases, restating the trust). Different language is appropriate depending upon whether you live in a community or separate property state. Sometimes, a RLT will include a statement of intent. The RLT will then have a provision for initial funding, which is important as a RLT must be funded before the death of the “grantor” (the person who created the trust).
The RLT will typically list your family and any others that you want to benefit from the trust (and any you specifically do not want to benefit from the trust). The RLT will have provisions for both the administration of your trust during your incapacity and the administration upon your death. Typically, the trust creator is in charge of the trust until his or her incapacity or death, but there will be provision for who takes over in the event the grantor no longer can be in charge. A good trust will have language about when and how distributions from the trust should be made during three distinct phases: (1) prior to your incapacity and death; (2) at your incapacity; and (3) at/after your death. These distributions can be of specific gifts or of a general share of your estate. How those distributions are made can vary drastically from trust to trust (and even from beneficiary to beneficiary). For example, one beneficiary may get her share outright while another beneficiary's share is placed into a special needs trust. If assets remain in a trust for one of your beneficiaries, additional language might be added to control when the beneficiary is entitled to receive funds from the trust. The RLT should also have language regarding what happens if a proposed beneficiary dies before receiving the share set aside for him or her.
In addition to providing for individuals, a RLT can make provisions to provide for charities. There are many ways to make such provisions, so if you want to make a significant charitable gift using a RLT, you should discuss that in your estate planning consultation meeting.
To provide for ease of change, some RLTs provide for distribution of personal property by memorandum. This method allows you to decide who you would like to receive specific items of your personal property when you die, and, if you change your mind, it represents a way to easily make changes on your own without having to amend the trust.
A RLT should also have language regarding how any taxes are apportioned among the beneficiaries. Further, if you are married (or may be in the future), the RLT should have language regarding the marital share. A RLT may have language about the administration of the trust with regard to underage or incapacitated beneficiaries.
These items are certainly not all of the provisions of a RLT, but they should give you an indication of why you should consult an estate planning attorney to ensure that the document is correctly made. However, with a Revocable Living Trust based plan, you will also receive the following documents:
- Pour Over Will
- Assignment of Personal Property to the Trust
- Durable Financial Power of Attorney
- Medical Power of Attorney
- HIPAA Authorization
- Advanced Health Care Directive (different from a DNR)
- Remembrance and Services Memorandum
How Much Does It Cost
Just like with a Last Will and Testament based plan, the cost for a RLT based plan varies based on the complexity of the plan. However, as with any other plan you will be provided a final flat fee cost prior to committing to the proposed plan. Most of our RLT plans end up being about $2,000 for a single individual or $2,500 for a married couple.
The first thing that is important to realize is that our office engages in comprehensive planning. This means that you are not simply getting a RLT. Rather, you are getting a set of documents that work together to decide both what happens upon your death and what happens in the event of your incapacity. Some of the factors that we look at when pricing an estate plan are:
- Whether you are choosing to use a Last Will and Testament, a Revocable Living Trust, or something else as the primary document in your plan.
- The level of planning you select (for example, do you want to create a pet trust or do you want to keep things as simple as possible).
- The number of specific gifts (and any provisions related to those gifts) and residuary beneficiaries.
- Any specialized language such as a standby special needs trust in the document.
- Provisions related to the management of inheritance for certain beneficiaries (for example, special provisions appointing an individual to manage the inheritance for a minor).
- What level of tax planning needs to be accomplished.
- The number of properties that a deed may need prepared for.