In October, National Estate Planning Awareness Month, I spoke with an estate planning attorney, Amanda Pyper Ruiz at Same Day Wills, who shared some great tips and things to think about when considering the will vs trust question or updating a trust. With her permission, I am including her helpful information below. You may find many of my free resources helpful in acting on her tips.
A Revocable Living Trust (“RLT”) is a legal agreement that transfers ownership of your assets to a Trustee (initially you) to hold in trust for your benefit and then later for the benefit of your beneficiaries. The terms of the RLT are modifiable by you during your lifetime.
You maintain control of your assets as long as you are the Trustee, and you can dictate what happens to your assets once you pass away without court involvement. Assets that are owned by your RLT avoid the probate process and can be held or passed to your beneficiaries on your terms.
Below are 10 things to keep in mind when considering an RLT:
RLTs can be a great tool for individuals with minor children, individuals with family drama, and individuals who own property in states that do not have Transfer on Death deeds. However, it is possible to avoid probate without an RLT.
When you set up your RLT with your attorney, you will have to fund it, which includes re-titling your assets. It can be a paperwork intensive, expensive process, especially if your attorney and your Certified Financial Planner are not working together. This may not be something that you are ready for or do not need at all.
In some states, there are other tools that allow you to avoid the probate process. You may be able to record a beneficiary deed on your house so that it will pass to someone of your choice immediately upon your passing.
You may be able to set up the same type of transfer on your bank accounts, investment accounts, and vehicles. Additionally, your life insurance proceeds and retirement accounts will already pass outside of probate via the beneficiary designation on each one. Thus, having a basic will, up-to-date beneficiary designations, and beneficiary deeds can help you avoid probate without an RLT.
If you determine that an RLT is right for you, keep the considerations listed below in mind.
Your attorney will draft your RLT and likely transfer your personal residence into your RLT. However, your attorney is unable to access your bank, investment, crypto, retirement, and other personal accounts to update the title holder information.
You will need to contact the account custodians to change your beneficiary designations and update the title holder of your accounts. Your attorney should give you a letter about how to move your assets into your RLT but will not be able to move most of them for you. You should take that letter to your Certified Financial Planner right away. You should also be sure to update your CPA about your RLT.
Make sure to introduce your attorney to your CFP and your CPA. This way, your CFP and CPA can go directly to your attorney with questions when updating your investment accounts and preparing your taxes.
When you set up your RLT, you will assign your personal property to the RLT. However, you want to be sure to also assign any business interests you have so that your Trustee can help keep your business running smoothly during any transition period after your passing.
RLT amendments are necessary for major life changes, but make sure that you are not making unnecessary amendments. Avoid listing your real property addresses or vehicle specifications in the RLT agreement if you are likely to sell those assets. Instead, either list them separately on an attachment like a Schedule A so when you sell or acquire an asset, you only have to update your Schedule A.
In the alternative, while specificity is typically encouraged in legal documents, avoid being too specific about property. You may consider general statements like “any of the collectible baseball cards I own at the time of my passing go to my grandson John Doe” rather than listing something that you may not own in 20 years.
Asking a family member to be the Successor Trustee of your RLT, especially RLTs that include subtrusts, is a big ask. Talk to your Successor Trustees to be sure that they know what is involved. Be sure to include a procedure for them to step down and include at least two Alternate Successor Trustees.
Finally, be aware that if you choose a corporate or private fiduciary as a Successor Trustee, there are costs involved and estate value minimums. Those Trustees also have specific language that must be in your RLT so make sure to include them in the drafting process with your attorney.
Your Successor Trustees are only as good as the information they have. Thus, make it easy for them. Write down your passwords, assets, bill information, and insurance policy information. Keep the information in a safe place, but make sure they can fulfill their duties as Trustee by having access to the information they need.
The Trustee of your RLT only has control over assets that are in your RLT so you will also need to have a Pour Over Will in case any assets are outside of the RLT at the time of your passing. Additionally, you will want to have up-to-date Financial, Health Care, and Mental Health Care (in some states) Powers of Attorney and a Living Will.
Once you have set up your RLT, you must acquire all new property and accounts in the name of your RLT. Additionally, if you want to refinance your personal residence, many financial institutions will require you to take your property out of your RLT. Be sure to put your property back in your RLT after the refinance is complete.
It is good to review your estate plan every three years. However, life can change more often than that so be sure to update your RLT, Powers of Attorney, and your Schedule A when there is a birth, death, marriage, or divorce in the family.
Disclaimer: The information in this article does not constitute legal advice and does not create an attorney-client relationship.
Have you considered establishing a revocable trust? Would it work for you? Why or why not? What has your advisor said about an RLT?