HOW REVOCABLE LIVING TRUSTS
FIT INTO YOUR ESTATE PLAN Learn Why Revocable Living Trusts Form Integral Parts of Many Estate Plans – the Benefits they Convey as well as the Things They are Unable to Do
MICHAEL ROBINSON ROCHESTER NEW YORK ESTATE PLANNING ATTORNEY
When you create a revocable living trust you create a separate legal entity that can continue to exist even after you have died. Once you transfer property to that living trust, it is no longer yours. Revocable living trusts form integral parts of many estate plans. These tools have become much more popular recently because federal estate tax laws almost guarantee that most people will never have to pay a dime in estate taxes. So why are these trusts so popular? What benefits do they convey? What are they unable to do? You should always speak to your estate planning lawyer if you need any clarification about a revocable living trust or other estate planning element, but here is a brief explanation of how these tools fit into your plan.
SEPARATE ENTITIES The primary reason most people create a revocable living trust is to avoid probate. In the state of New York, as in all other states, the property you leave behind after you die is known as your estate. Once this happens, someone has to find out who is legally entitled to inherit that property from you. The process involved in determining who these new owners are is known as probate. New York’s probate courts, called Surrogate’s Courts, are responsible for managing or supervising the process through which those new owners are identified.
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When you create a revocable living trust you create a separate legal entity that can continue to exist even after you have died. Once you transfer property to that living trust, it is no longer yours. Because of this, and because the trust can survive your death, the property the trust owns does not have to go through the probate process. When you establish a revocable living trust you get to determine how you want to distribute trust property after you are dead. The trust, through the trustee you appoint to manage it, will also allow you to manage and control all of that property while you are still alive. Most people who create a revocable living trust serve as the trustee and name someone else to serve as the successor trustee. The successor trustee is responsible for managing the trust after you are dead, or after you have become incapacitated and can no longer perform your trust management responsibilities. This effectively gives you all the right to use and control your property that you would have if you owned it as an individual, while also giving your estate the ability to avoid probate after you die.
PRIVACY AND CONTROL Another great facet of revocable living trusts is their ability to allow you to keep your estate private. Like many other court proceedings, probate proceedings are open to the public. For example, if you were to write a last will and testament, someone would have to submit it to the probate court after you die. After this happens, anyone who wants to can go to the court and look up your will whenever they like.
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With a revocable living trust, on the other hand, there is no public record involved. You do not have to file your revocable living trust with the probate court, nor does the Surrogate’s Court have to supervise the process through which trust property transfers to new owners. Also, because you get to choose both the trustee and the successor trustee, you choose who maintains control over trust property both while you are alive and after you are dead.
TAXES AND ASSET PROTECTION Even though revocable living trusts are relatively simple legal tools, there are many other types of trusts available. Trust law itself is somewhat complicated, and the general public doesn’t really have a good understanding of what is involved. Because of this, some people confuse some of the benefits that you might receive by creating other types of trusts, such as asset protection and tax reduction, with the benefits you receive with a revocable living trust.
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The process of creating a living trust is fairly straightforward. You sit down with your estate planning lawyer, discuss what you want, and create a document that sets out all the required terms. You then sign and notarize the document, and, voilà, you have a revocable living trust. ●
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Your revocable living trust will not help you reduce how much you have to pay in income taxes, nor will it reduce how much your estate might have to pay in estate taxes. The federal estate tax limit for 2013 is $5.25 million per individual. If you leave behind an estate that exceeds this amount, your estate will have to pay taxes on the excess. While creating other types of trusts, such as different types of irrevocable trusts, can help you reduce or eliminate the amount of estate taxes your estate will have to pay, creating a revocable living trust is not going to help unless it also incorporates a tax sheltering trust.
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Additionally, a revocable living trust does not help you if you are interested in asset protection. Asset protection involves shielding your assets from, for example, lawsuits or debt collectors. If you lose a lawsuit, the winner might be able to take your property. Through asset protection, you take your assets and transfer them to different legal entities, thereby preventing your creditors from seizing them. Creating one or more types of business associations, irrevocable trusts, or other tools can help you if you are interested in asset protection, but creating a revocable living trust cannot.
TRUST CREATION AND FUNDING The process of creating a living trust is fairly straightforward. You sit down with your estate planning lawyer, discuss what you want, and create a document that sets out all the required terms. You then sign and notarize the document, and, voilà , you have a revocable living trust. But the trust document itself is not all you need. You also have to go through the process of funding the trust, meaning you have to transfer the property you own as an individual into the trust’s name. Even if you have a living trust, one that is not properly funded is practically worthless. Further, the funding process is often a more complicated process than many people realize, and is one of the many reasons why you need to talk to an experienced estate planning lawyer if you are interested in establishing a living trust. Your attorney will also help you ensure that you create the other estate planning tools you need in addition to the trust.
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About the Author Clients notice Michael Robinson’s unique approach to his estate planning practice the minute they walk through his office doors. Mike has established a law practice that provides clients with a warm, comfortable and relaxed atmosphere staffed by professionals who believe in providing highly individualized attention. That’s especially important in Mike’s practice, because estate planning is an often personal process reflecting the most cherished hopes and dreams of his clients. “The estate planning we do for our clients,” Mike explains, “often represents the culmination of their life’s work. That’s why we take a personal interest in helping them complete estate plans that suit their needs and that address the unique circumstances of their families.” There’s one last difference clients often remark upon in Mike’s estate planning practice. “Because we concentrate on estate planning exclusively, we have the focus to bring state-of-the-art, cutting-edge estate planning techniques and strategies to a broad range of clients, no matter how diverse.” Mike’s firm has the breadth of expertise to provide its clients with estate plans ranging from the basic to the very sophisticated, including offshore asset protection trusts. His office regularly conducts seminars on estate planning topics throughout the Rochester and Finger Lakes area. Mike has also been a guest speaker on the subject of estate planning before a variety of professional organizations. The Law Office of Michael Robinson, P.C. 196 North Main St. PO Box 417 Naples, NY 14512 www.mrobinsonlaw.com Phone: (585) 374-5210 Fax: (585) 374-9327
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