Revocable Trusts are a popular, but sometimes misused tool in estate planning. If your circumstances require a Trust in your planning, then its use can be very worthwhile for you and your family.
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What is a Revocable Trust?
A Revocable Trust is simply an agreement created during lifetime in which an individual (called a trustee) holds legal title to property on behalf of a beneficiary, who is typically the individual establishing the trust (often called the grantor) and thereafter is responsible for disposing of that property upon death. This is quite similar to the job of a Personal Representative under a Last Will and Testament, although a trustee is not under the direct supervision of a probate court.
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How does a Trust Work?
When you establish a Revocable Trust, you would retain the absolute power and right to revoke the trust, or to otherwise amend or change the trust terms in any fashion. In addition, you may withdraw the trust assets at anytime by taking the properties back into your individual name. The Revocable Trust is beneficial because it permits you to transfer title of your assets to the trust entity. In fact, the re-titling of assets during lifetime is generally considered to be the revocable trust’s principal advantage since assets held by the trust will not be subject to court supervision. Furthermore, you can serve as initial trustee so as to maintain complete control over the management of the assets.
In the event of your incapacity or illness, a successor takes over as trustee to manage the trust and otherwise provide for your well-being, without the necessity of seeking the appointment of a legal guardian to take control of your assets.
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Who needs a Revocable Trust?
If your individually owned assets are more than $75,000, then a Revocable Trust is probably worth consideration. Examples of the types of assets that generally are owned by a Revocable Trust during your life include bank accounts, taxable investments, business interests and investment real estate.
Retirement assets and life insurance policies can be directed to your Revocable Trust (or directly to your Trust beneficiaries) with beneficiary designations, and therefore, titles to those assets are not owned by a Revocable Trust during your lifetime.
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If I have a Revocable Trust, do I need a Will?
While your Revocable Trust will, in effect, take the place of a Last Will and Testament, in that the trust will provide for the disposition of your assets at death, a Will is nonetheless a necessary instrument in every Estate Plan. If a trust is established, but your assets are not properly transferred to your trust during lifetime, a Will would be required to direct the disposition of your assets at death. In an Estate Plan that includes a Revocable Trust, a Will could merely provide that any assets that might be titled in your individual name pass to the trust to be held by the successor trustee under the general provisions of your Estate Plan. Moreover, your Will would name a guardian for any minor or disabled children.
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How do I make Changes to my Trust?
If you desire to change your Revocable Trust, simply writing on your Trust Agreement is not effective. Your Trust can be changed with a formal document called an “amendment” that is executed in the same formalities as a Revocable Trust execution. These can best be accomplished by periodically reviewing your Trust Plan with an attorney to insure that your estate will be distributed with your wishes.
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