Revocable Living Trust (RLT)

By: Elliott Stapleton

Why might you need a Revocable Living Trust?

The Revocable Living Trust (also known as a Living Trust) is primarily used to avoid probate and gain more control over the distribution of assets upon death. This control might include distributing assets to beneficiaries at a more mature age (instead of when they reach 18), creating standards under which distributions would be made (for example, health, education, support, and maintenance), protecting assets from the creditors of the beneficiary (if the beneficiary has special needs, is a professional with potential personal liability, is a business owner who has guaranteed debt), or other individual-specific needs. Here is a video summarizing the difference between a Will and a Trust.

Within the Revocable Living Trust, other types of trusts can be embedded and activated upon death. These include some of the trusts listed in this article.

Upon the death of the Revocable Living Trust’s creator, the RLT becomes irrevocable. After the RLT becomes irrevocable, generally, it cannot be changed. The process of becoming irrevocable is the mechanism that allows the trust to avoid probate.

Avoiding probate is beneficial as it reduces the costs of administration, time of administration, and keeps the distribution of assets out of the public domain.

 

Is it irrevocable or revocable?

As the name suggests, a Revocable Living Trust is revocable, meaning once it is created, it can be changed. This includes changes by the person (or people if it is a joint trust) who created the trust. Sometimes, you might allow your financial power of attorney or a Trust Protector (also known as a Trust Advisor) to make modifications.

Is a separate tax identification required?

The Revocable Living Trust does not require a separate Tax Identification Number; the creator (also known as Settlor or Grantor) would use their social security number as the identification number. Upon death, a social security number can no longer be used.

Can you be your own Trustee?

You can be your own trustee of a Revocable Living Trust. If this is a joint trust, both you and your spouse can be the Trustee.

Is a gift tax return required?

No gift tax return is required for a Revocable Living Trust. The assets held within the RLT are still under your control and will be used for your benefit; thus, there is no gift to any third party.

Is this subject to estate tax upon my death?

Yes, assets held within the Revocable Living Trust are technically subject to estate tax. Not everyone is subject to estate tax. It is not until you reach a level of considerable wealth that estate tax becomes a concern.

Note that a Revocable Living Trust can be used for estate tax planning purposes, including a Bypass Trust (B-Trust or Credit Shelter Trust) or Qualified Terminable Interest Property Trust (QTIP Trust or marital trust).

Is there creditor protection?

As with most trusts, if you have total access to the assets, so do your creditors. There is no creditor protection during your life, but it is possible to embed creditor protection for your beneficiaries. Thus, a Revocable Living Trust does provide some creditor protection, just not to the individual who creates the RLT while living. There are other options for creditor protection, such as: Domestic Asset Protection Trust – Ohio Legacy Trust and Medicaid Trust.

What assets can be placed in this type of trust?

The Revocable Living Trust can own almost any type of asset. The one asset it cannot own is a retirement account. You would not want to place any retirement accounts into the RLT because doing so would trigger taxes and potential penalties.

How does it work?

During life, assets are either placed in or made transfer on death to the Revocable Living Trust. The assets within the RLT are accessible to the trust’s creator and can be used for their benefit. This includes if the creator of the trust is disabled or on government assistance.

Contact Trust Attorney Elliott Stapleton today to schedule a consultation and learn more about how we can help you with your estate planning needs.

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