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Revocable Living Trusts
For some families a Will based estate plan is just not enough. For various reasons many people look to Trusts to meet their estate planning needs. A Trust can do everything a Will can. Trusts can transfer property, make specific gifts, etc. Trusts, when used properly, can offer extra layers of protection and control that some people need.
Trusts are a commonly used estate planning instrument. Trust based estate plans are utilized for various reasons, including minimizing estate taxes, minimizing or eliminating probate fees, protecting special needs children, in second marriages where there are children from both sides (blended families), preserving and protecting assets, and controlling your assets from beyond the grave, commonly called “dead hand control.” Some common types of Trusts are Revocable Living Trusts, Irrevocable Life Insurance Trusts and Special Needs Trusts.
A Trust acts as a “legal container” that holds property for the benefit of the beneficiary of the Trust, who is usually a person, an institution or a charity. Trusts are legal agreements between three different parties: The Grantor (sometimes called a Trustmaker or Settlor) who establishes the Trust, the Trustee who administrates the Trust, and the beneficiary, who receives some sort of benefit (usually income) from the Trust.
Many people utilize Trusts as an inheritance planning mechanism. One of the most challenging problems in estate planning is how and when to pass an inheritance to your children. The greatest level of care must be used when planning your children’s inheritance. In the absence of any planning, your children will receive their inheritance outright, provided they are at the age of majority, which in Connecticut is 18. When an inheritance is given outright, it can become prey to many different threats, including creditors, predators, divorces, car accidents or poor money management. One way to ensure against this is to place your child’s inheritance into a Trust to safeguard it.
Revocable Living Trusts (RLTs) can be valuable estate planning tools. A Revocable Living Trust acts like the “legal container” described above. The RLT holds property for the benefit of the person who established the Trust, also known as the Grantor, as well as other beneficiaries, such as the Grantor’s spouse or children. Upon the creation of a Revocable Living Trust, the Grantor, Trustee, and Beneficiary are often the same person.
To create a Revocable Living Trust, the Grantor signs a Trust agreement that is drafted by an estate planning professional, and duly executed under the laws of the State of Connecticut. After the Grantor and the Trustee sign the Trust agreement, the Grantor funds the Trust. To fund the Trust the Grantor re-titles the assets in the name of the Trust, making the Trust the owner of the property. Funding is a critical step in the creation of any Trust. An unfunded Trust is akin to a car without any gas, it is not going to get you very far. Once the Trust agreement is signed and funded, the Trustee manages and distributes Trust assets according to the instructions in the Trust agreement.
If the Grantor/Trustee becomes incapacitated, then the successor Trustee takes over and manages and distributes the Trust assets for the Grantor/Beneficiary according to the instructions laid out in the Trust agreement. Upon the death of the Grantor the Revocable Living Trust becomes irrevocable and the successor Trustee takes over managing and distributing the assets to the beneficiaries.
People often utilize Revocable Living Trusts as a probate avoidance mechanism. Why would a person want to avoid probate? Common issues associated with the probate process include: the time involved, the costs of probate, and the lack of privacy in the probate process. Typically, it takes nine months to a year to probate an estate. In addition to taking a long time to get your assets into the hands of your beneficiaries, the cost of probating an estate in Connecticut can range from 1-4% of the gross estate. So a person who dies with a one million dollar probate estate can generate fees up to $40,000.
Another reason why many people want to avoid probate is due to privacy issues. Probate is a public process. Once your Will is admitted to the Court it is a public document. Many people want to avoid such attention. Trusts, on the other hand are private documents, and as such, not available to the public. If any of these issues are important to you a Trust may be in order. By using a Revocable Living Trust you can put your assets into your beneficiary’s hands in days instead of months, minimize the cost of transferring the assets, and do so privately.
A final benefit associated with Revocable Living Trusts is the solution to problems that arise when a person owns property in multiple jurisdictions. Without a Trust the probate process would need to be opened in every state where you owned property, which can be costly and time consuming. Trusts allow you to pass property outside of the jurisdiction where you live, outside the probate process, and away from the administrative costs and time constraints associated with that process.
Revocable Living Trusts are a great method of avoiding probate and the costs and time associated with probating an estate. The fees for establishing a Trust based plan are certainly more than a Will based plan but may be well worth it. The individual needs to decide if the cost is outweighed by the benefits of Trust based planning.
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