What is a revocable living trust?
A revocable living trust is an arrangement in which a Grantor (the trustmaker) places their assets and property in a trust, which can be updated and revised by the Grantor while they are alive. The trust is then managed by a Trustee, who is tasked with distributing the assets to the beneficiaries of the trust upon the Grantor’s death.
A probate court does not need to distribute assets and property in a trust, because the property and assets have been allocated to the trust. Since assets in trusts are not subject to probate, having a revocable living trust facilitates the distribution of assets by bypassing the probate process, which can be both costly and timely.
If you have considered including a revocable living trust in your estate plan, it is important to be aware of misconceptions that can affect your plan and leave you with a false impression.
Misconception #1: Assets in a revocable living trust cannot be used by the Grantor.
Assets in a revocable living trust can still be accessed by the trustmaker. The Grantor of a revocable living trust has the option to appoint themselves as the Trustee, the person designated to manage the trust. If this is the case, a Successor Trustee may be appointed to manage the trust in the event of the Grantor’s death or incapacitation.
Misconception #2: Once a revocable living trust is signed, the Grantor’s assets are automatically exempt from the probate process.
An unfunded trust is still subject to probate. A trust is considered to be unfunded if the ownership titles of the assets are still in the name of the trustmaker.
In order to “fund” a trust, the ownership titles of the trustmaker’s assets must be transferred from trustmaker to the trust. This includes vehicle titles and financial accounts. In the event of the Grantor’s death or incapacitation, the Trustee (or the Successor Trustee) can only manage the assets in a funded trust. Otherwise, the assets may still face probate.
Misconception #3: Revocable living trusts are only necessary for those with large estates or many assets.
It is commonly assumed that estate planning tools, like revocable living trusts, are less important for those with smaller estates. However, an estate does not only encompass money and real estate; Estates also include vehicles, electronic equipment, art, and other valuable possessions.
Further, a revocable living trust offers the Grantor flexibility in how their funds and property will be distributed. A Grantor with minor children may prefer to hold funds in a trust, to be dispersed to their beneficiaries in increments.
Misconception #4: Revocable living trusts are always the correct option.
Every estate plan is different. Circumstances, family needs, and assets can all have an effect on how one chooses to plan ahead. Some individuals may find a will to be a superior choice for preserving their wishes, while others may benefit much more from transferring their assets into a revocable living trust.
When it comes to estate planning, navigating your options can have a great payoff. Seeking the guidance of an estate planning professional can offer much-needed assurance and security.
If you would like assistance with estate planning in Maryland or have questions regarding your situation, we invite you to contact the Law Offices of Elsa W. Smith, LLC at 410-995-7719.