A revocable living trust agreement is a legal document that shows how a person’s assets should be divided once they die.
The person creating the trust (grantor) entrusts their assets to a trustee to benefit third parties called beneficiaries. For example, a parent of minors can prepare a revocable living trust agreement entrusting their property to a close relative to maintain for their children. The trust agreement must be made while the grantor is alive, allowing the grantor to amend it if circumstances change or when they purchase a property.
The revocable living trust goes by many names, including:
- Inter vivos trust
- Revocable trust
- Living revocable trust
- Joint revocable trust
The revocable living trust must be made while the grantor is alive, hence the term ‘living.’ The grantor can adjust the trust by adding assets and removing or adding beneficiaries. A living trust transfers all the assets to a trustee, who shall distribute them to the beneficiaries. It is advantageous because it helps avoid the probate process, which is lengthy and more expensive. The trust also allows you to give your property to whomever you want, which would not be the case in probate.
In probate, the grantor’s property will be distributed according to the state’s laws on intestacy; the grantor has no control over the property. Further, the trust is a private document that protects your information on assets and beneficiaries, unlike court documents that the public can access. Finally, a living trust can be used when the grantor becomes incapacitated; the trustee can manage their assets.
Revocable Vs. Irrevocable Living Trust Agreement
The revocable and irrevocable living trusts are similar in the sense that they are made in the lifetime of the grantor. However, the revocable living trust can be amended by the grantor at any time. The assets and beneficiaries can be added or removed at any time without the beneficiaries’ approval. The grantor maintains control over the property at all times until they die.
note
Since the grantor is the only one who can amend the trust, a revocable trust automatically becomes an irrevocable trust upon the grantor’s death.
In contrast, with an irrevocable trust, property is transferred to the trustee, and the grantor has no control over the assets once the trust is made. The beneficiaries must approve the trust before execution, and the grantor must get the beneficiaries’ approval before making any changes. This lack of control may be restrictive to the grantor. On taxes, the revocable trust is taxed as the grantor’s personal property.
As a result, the grantor remains responsible for paying all taxes, including income and inheritance tax. The irrevocable trust becomes an entity of its own and must pay its taxes from the income it generates. Lastly, an irrevocable trust protects the grantor’s estate as the property can not be used to fulfill the execution of a judgment. A revocable will offers no such protection since the grantor owns the property; judgment can be executed against the grantor.
A revocable trust requires you to organize your assets and indicate how they should be distributed. You can follow the steps below when creating your revocable trust:
How to Set Up a Revocable Living Trust
Given below are the steps to set up a revocable living trust:
Step 1: Create a revocable living trust agreement
The agreement should state that the grantor is making a trust for the sake of the beneficiaries. It should include all the assets and the heirs and state that the trustee will be responsible for the maintenance of the assets. The trust document should also contain clauses on amendments to the trust, whether the trustee can be changed and in what circumstances the trustee can be changed.
Step 2: Sign and notarize
Once the document is ready, the grantor must sign it in the presence of a notary public. If the grantor appointed a trustee, the trustee must also sign the document to show consent. The notary public verifies that it is the grantor that has signed the document. The trust only becomes valid if it is signed and notarized.
Step 3: Transfer ownership of assets
Once the trust document is ready, the grantor has to transfer assets to the trust. However, each asset has different requirements. For example, real estate is transmitted through a deed; ownership can only be transferred upon fulfilling the set requirements.
note
Most grantors create a pour-over will along with the revocable will. The pour-over will is a testamentary document stating that a grantor’s property shall be transferred to the trust once they die.
How to Fill a Revocable Living Trust Agreement
Once you have all the necessary information, you can download the revocable trust form from your state’s website or online sites. You should fill out your form as follows:
Step 1: Introduction
The first age must indicate the name of the trust, for example, ‘Revocable Living Trust of _______’. The trust should then be dated to indicate the day it came into operation. After the date, the grantor and trustee should identify and provide their mailing addresses. The grantor is the trust’s creator, and they may be called the donor, trustor, or settlor. The trustee is the person appointed by the grantor to manage the assets in the trust.
In most revocable living trusts, the grantor remains the trustee so that they can amend the trust should the need arise. For identification purposes, the grantor has to recognize the trust by its name and indicate whether it’s an original, amended, or restatement trust.
Step 2: Property and distribution
The property section can be divided into subsections indicating the property and the beneficiary entitled to it. The subsections may be divided according to the types of property or beneficiaries. For example, the grantor may begin with tangible assets to be given to each beneficiary, then state who can take their pets, etc. The property should be stated as precisely as possible and the beneficiaries identified by name and their details included.
Step 3: Beneficiaries
The grantor should then provide the names of four beneficiaries and their Social Security Numbers for identification and addresses. Beneficiaries are the individuals on whose behalf the trust was created. Most grantors name their children as beneficiaries, but the grantor may name others. They are entitled to the assets managed by the trust once the grantor dies.
To cover all bases, the grantor should mention what will happen to the property should all the beneficiaries fail. Typically, where beneficiaries fail, the property falls under intestacy laws and is distributed as such. For this reason, the grantor must state the state in which the trust is being created.
Step 4: Appoint a pet caretaker
The pet caretaker is an individual appointed by the grantor to oversee their pet in the event of their death. The grantor should name a caretaker and an alternate caretaker and provide their addresses for identification purposes. In addition, the grantor should state whether the caretaker will receive funding from the estate, what amounts, and after how long.
Step 5: Accounting and successor trustees
To keep the trustee accountable, the grantor should include a clause that the beneficiaries can request an account of the assets in the trust. The trust should indicate the number of requests that can be made. To ensure the trust can be enforced, the grantor should appoint a first successor trustee and a second successor trustee. A successor trustee fulfills the duties in the trust when the trustee dies or becomes incapacitated.
Step 5: Compensation
Since the trustee maintains the trust, they provide a service that must be paid. A compensation clause has to be included stating whether or not the trustee is entitled to compensation.
Step 6: Governing law
Since each state has its law and requirements, it is necessary to state the law that will govern the operation of the trust.
Step 7: Survival, marriage, and children
Where the grantor has a spouse, it may be necessary to state the period that should pass before beneficiaries can lay claim to the trust. In addition, the grantor must include a clause affecting the property transfer to the spouse upon death. For this purpose, the grantor should indicate whether they are married and mention the spouse’s name and address. In most cases, the children are the beneficiaries; if so, the trust should identify them as the grantor’s children.
Step 8: Exclusion
If the grantor chooses to, they can exclude certain persons or organizations from accessing their assets. The names of the excluded persons should be mentioned.
Step 9: Signatures
The grantor, trustees, and successor trustees should sign and date the trust to effect the trust. Where the trust is notarized, the grantor, trustee, and successor trustees have to sign a self-proving affidavit before a notary public. The self-proving affidavit is part of the trust document. Most trusts have an attachment where all the properties are explicitly listed to ensure all assets are included.
Templates
How Can One Change a Revocable Living Trust?
One of the main advantages of a revocable living trust is that it can be amended at any time before the grantor dies. Should the grantor want to change beneficiaries, add an asset, or name add another trustee, they are free to do so.
There are two ways of changing your trust; a trust amendment and a trust restatement. A trust amendment is another document in which the grantor states the changes they wish to make while stating with specific reference the part of the original trust to which the changes apply. The initial trust remains in effect but with the changes in the trust amendment. The amendment should be signed before a notary public and attached to the original trust.
A trust restatement is a rewrite of the original trust with the changes included. The initial trust remains effective, but it will be read with the changes incorporated in the trust restatement. A restatement is recommended when the grantor makes significant changes to the trust.
Pros and Cons
Living trusts are just one way in which people can distribute their assets. The revocable living trust has its advantages and disadvantages, for example:
- Revocable trust help maintain the grantor’s privacy as the documents do not become public record, unlike situations where assets are distributed in the probate process.
- Revocable trusts are not subject to probate, which is more expensive.
- The trustee can manage the property should the grantor become incapacitated.
- On the other hand, revocable trusts may be more expensive to establish than wills because of the cost of transferring property to the trust.
- Revocable trusts require maintenance because changes may be made at any time before the grantor’s death.
Frequently Asked Questions
The trustee owns the property in a revocable trust. The trustee is usually the trust’s grantor/creator, which is why it is easier to make changes while they are alive.
All assets owned by the grantor can be put in a trust. Assets like real estate, bonds and security accounts, patents and other intellectual property, memorabilia, and even jewelry can be placed in the trust.
The property transfer to or from a trust depends on the type of asset you want to transfer. For example, real estate is transferred by a deed that changes ownership from the grantor to the trustee. Other assets like jewelry may need a bill of sale.
Yes, revocable trusts are disregarded entities because, in most cases, the grantor doubles as the trustee. Because the same person owns the property, they are liable to pay income tax like it is personal property.
Yes, once the grantor dies, the revocable trust becomes irrevocable. It is because the grantor/trustee was the person in control of the trust, and it can only be changed during the lifetime of the grantor.
About This Article
