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What is a Revocable Living Trust?
A Revocable Living Trust (RLT) generally provides for the creator of the trust (and, if applicable, the creator's spouse) to have full use of the trust income and principal for life. On the death of the creator, the assets may continue to be held in trust (or may be distributed) for the benefit of the named beneficiaries, such as the grantor's children. The major benefits of the RLT are avoiding probate and protection from incapacity.
With an RLT, you can provide how the real estate and other trust property is to be distributed at your death. As with a Will, you can provide for any number of special situations. You may, for example, provide that your trustee hold and manage property to be distributed to your children when they reach the age of majority, or until a later age if you believe they need longer-term protection. You may also provide that your trustee hold the property and distribute any income to your spouse during his or her life with the property passing to your children or other beneficiaries at your spouse's death. Because your assets pass according to the trust instrument, they do not pass through your estate and, therefore, are not subject to the complications of probate.
Protection from Incapacity:
Together with your lawyer, you must develop a plan for the ultimate disposition of your property. Your lawyer will then use that plan to draw the RLT instrument which provides how you, as trustee, will manage your assets and how and when you will make distributions. With your lawyer's help, you must arrange for your assets (such as real estate, bank accounts, and securities) to be transferred to the trust. No separate tax returns are required for the RLT. The tax laws consider you as still owning the property since you still control the property as trustee. All income from the trust will be considered earned by you for income tax purposes. At your death, the property in your RLT is included in your estate for estate tax purposes.
If you do not want to transfer your assets to an RLT now, but still want the protection and advantages the RLT provides, then you can establish your RLT coupled with a durable power of attorney. The trust agreement will be executed, but the RLT will be funded with only a nominal sum. The trust will exist on a "standby" basis, awaiting the receipt of your assets if you become incapacitated. Your power of attorney gives the person you select (called the "attorney-in-fact"), the power to transfer your assets to your standby trust. If you die suddenly, however,there obviously will not be time to transfer your assets to the trust and your property must go through probate. State laws regarding the use and acceptance of a power of attorney may vary.
For Additional Information:
What is Probate?