Most people do not have the assets to do a full blown estate plan. The Estate Tax Exemption is $5.25 million today, and that takes most people out of the running. However, everyone should have a plan. Some people will make a will and call it a day. However, smart people will form a Revocable Living Trust to handle their assets while alive and dispose of them upon death.
Let’s start with some basics. A trust is an agreement whereby a person’s property is to be managed and distributed during his or her lifetime, and at death. Most trusts have three parties:
Grantor – This is the person that creates and funds the Trust.
Trustee – This is the person who holds title to the trust property and manages the property in respect to the terms of the trust.
The Beneficiary – This is the person or entity that will receive the income or the principle of the Trust.
Other terms that are important would be Revocable, which means the Trust can be changed. Irrevocable, meaning the Trust cannot be changed.
A Revocable Living Trust (RLT) is an instrument that allows the beneficiary to use the property in their lifetime, and when they pass the property is disbursed to the remaining beneficiary(ies). Having your assets in a RLT will not protect them from the Estate Tax.
A RLT is created when a trust agreement is signed by the grantor and trustee. The second step is to transfer assets to the RLT. This is an important step. Trusts have to be funded. This usually requires the retitling of assets to the Trust. Because a RLT is Revocable, it should be updated with each new life change. For instance in the case of marriage or divorce. The best part of a RLT is that it avoids probate. Probate is a process by which your creditors and others are informed of your death and then they make claims to the property that you have.
An advantage to RLT is that the assets can be disposed of shortly after death, so there is no big waiting period. Further probate court approval is not necessary to sell an asset of the Trust. Further assets can continue to be managed by a successor Trustee in central administration just like they were managed during the grantor’s lifetime. This is good for businesses and real estate.
A common mistake that people make is that they form RLT without a Pour-Over Will. Pour-Over Wills are still needed for assets that escaped the RLT either by mistake or lack of planning.
RLT’s are a nice Estate Planning Tool. The more you get to know them, I think you will like them.
For more information visit
If you have any questions you can email Craig W. Smalley E.A., C.E.P.®, C.T.R.S.®
Admitted to Practice Before the Internal Revenue Service
Certified Estate Planner®
Certified Tax Resolution Specialist®
Author of the books:
- It Starts With an Idea – Tax Tips for Small Businesses
- The Ultimate Real Estate Investor Tax Guide
- The Complete Guide to the New Tax Law – American Taxpayer Relief Act of 2012
- Everything You Wanted to Know about the IRS – Audits, Appeals and Collections
- Tax Avoidance is Legal! The Complete Guide to Individual Income Tax
- The Complete Guide to the Affordable Care Act’s Tax Provisions
- The Complete Guide to Retirement Plans for Small Businesses
- The Complete Guide to Estate, Gift and Trust Taxation
- The Complete Guide to Hiring an Accountant
- The Complete Guide to Subchapter S-Corporations,
- Free Money
All available exclusively on Kindle
