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Why Should You Have a Revocable Living Trust?

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In estate planning, many people know about “wills” and “trusts.” While a will is crucial, a revocable living trust offers significant benefits. It provides flexibility and helps secure your legacy and protect your loved ones for the future.

October 5, 2023
Author: NCH

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This blog will explore the benefits of having a revocable living trust and why it may be a wise choice to incorporate into your estate planning strategy.

What Is a Revocable Living Trust?

A revocable trust is a legal arrangement that lets you manage your assets during your lifetime while planning for their distribution after you pass away. You, the grantor, create a living trust by placing your assets, such as money and property, into it while you’re alive. 

During the grantor’s lifetime, they serve as the trustee, maintaining control over trust assets. Upon their incapacity or death, a successor trustee named in the trust document takes over, following the grantor’s instructions for asset distribution to heirs or beneficiaries. 

Revocable Trust vs. Irrevocable Living Trust

A revocable trust allows the grantor to maintain control over the trust assets during their lifetime and retains the ability to modify or revoke the trust at any time. Because of this flexibility, revocable trusts are often used to manage assets, avoid probate, and ensure a smooth transition of wealth to beneficiaries upon the grantor’s death. 

As the name suggests, an irrevocable living trust cannot be easily modified or revoked once established. Assets transferred into an irrevocable trust are typically removed from the grantor’s taxable estate, potentially reducing estate tax liability. 

Key Benefits of a Revocable Living Trust

Probate Avoidance

Probate is the legal procedure through which a court validates a will and oversees the distribution of assets. However, it can be a protracted and expensive process, often lasting several months or even years, depending on the complexity of the estate.

You remove your assets from your probate estate by placing them in a revocable living trust. As a result, upon your passing, your successor trustee can quickly and efficiently distribute the assets to your beneficiaries, saving them from the hassle and cost associated with probate.

Streamlined Asset Management

With a trust in place, your chosen successor trustee can step in to manage your assets if you become incapacitated or upon your passing. This eliminates the need for a court-appointed conservatorship, which can be a costly and lengthy process.

The successor trustee will then fulfill your demands as outlined in the trust, ensuring the efficient and seamless transition of your assets to your chosen beneficiaries. 

Privacy and Confidentiality

Unlike wills, which become public records upon probate, the contents of a trust remain confidential. This means that your personal and financial affairs remain shielded from the public’s and potential creditors’ prying eyes.

Such a feature can be especially valuable if you have complex or sensitive assets you’d rather not disclose to the public. Additionally, it can protect your beneficiaries from unwanted attention or inquiries during what is already a challenging time.

Incapacity Planning

Estate planning isn’t just about what happens after you pass away; it also encompasses planning for possible incapacitation. A revocable living trust provides a built-in mechanism for managing your assets if you cannot do so yourself.

In the event of your passing, your chosen successor trustee can step in and manage your trust’s assets for your benefit, ensuring that your financial affairs are handled according to your wishes. This prevents the need for a court-appointed guardian, which is costly and emotionally draining.

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Tax Efficiency

In most cases, assets transferred to a revocable living trust are not subject to estate tax. This can result in significant tax savings for your beneficiaries.

Furthermore, a well-structured revocable living trust can be designed to minimize capital gains tax. By employing strategies such as a stepped-up basis, assets held in the trust can potentially appreciate over time with reduced tax liabilities, benefiting your heirs greatly.

Flexibility and Control

As the grantor of a revocable living trust, you retain full control over your assets. You can modify or revoke the trust anytime, making it an incredibly flexible estate planning tool. This adaptability is particularly useful when your circumstances change, such as when you acquire new assets or experience shifts in your family structure.

For example, if you marry or divorce, you can easily adjust your trust to reflect your new circumstances. You can also add or remove assets from the trust as needed, ensuring that it aligns with your financial objectives throughout your lifetime.

Avoid Family Disputes

Estate disputes can tear families apart. By clearly outlining your wishes and the distribution of your assets within a revocable living trust, you minimize the potential for conflicts among family members. When your intentions are spelled out in a legally binding document, it leaves less room for interpretation and dispute.

Moreover, a trust can include mechanisms for resolving disputes, such as appointing a mediator, which can help avoid costly and emotionally draining legal battles among your heirs.

Caring for Special Needs Beneficiaries

If you have a loved one with special needs who relies on government benefits, a revocable living trust can be a vital component of your estate plan. Directly inheriting assets could jeopardize their eligibility for these benefits. 

Instead, a special needs trust can be established within your revocable living trust to provide for the needs of your special needs beneficiary without affecting their government assistance.

Final Thoughts

Estate planning is more than just about the distribution of assets; it’s also about crafting your legacy and ensuring your wishes are honored. A revocable living trust empowers you to do just that. With its privacy benefits, probate avoidance, flexibility, and capacity for protecting your heirs, a living trust is a dynamic and versatile tool for estate planning.

At NCH, we can help you capitalize on the benefits of a revocable living trust. Whether you’re seeking privacy or the flexibility and protection a revocable living trust offers, our estate-planning team is here to assist you every step of the way. 

Call us at 1-800-508-1729 or visit our website to schedule your free consultation!

DISCLAIMER: The above material has been prepared for informational purposes only, containing opinions of the provider, and is not intended to provide, and should not be relied on for, tax, legal, or accounting advice. Please consider consulting tax, legal, and accounting advisors before engaging in any transaction.

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