There are a few facts about revocable living trusts that might seem a bit surprising to many individuals who are interested in this effective estate planning tool. While a living trust is often an adequate solution for avoiding lengthy probate and the expenses that are associated with this burdensome process, it may not be the right choice for everyone. Before deciding to create a living trust, it is advised that consumers learn the facts and compare their options.
What is a Revocable Living Trust?
A revocable living trust is an estate planning tool that is designed to hold ownership of a person’s assets. Most living trusts are revocable, meaning that they can be modified up until the time of the grantor’s death. They are referred to as “living trusts” because they are created when the individual is still alive. A living trust attorney may also refer to this as “inter vivos”. When a trustmaker creates a living trust, he or she names a trustee to take care of the property, and decides who will receive the grantor’s assets after his or her death. By transferring assets to a revocable living trust, probate is often avoided and thousands of dollars in legal fees are often saved.
Important Facts About Revocable Living Trusts
Here are a few facts about living trusts that consumers should be aware of.
- Assets with Named Beneficiaries: Because life insurance policies, pay-on-death bank accounts and retirement accounts typically avoid probate and transfer directly to beneficiaries, many people choose not to add these assets to their trusts. When the beneficiary is a child under legal age, these assets can be held. If the trust is made the primary beneficiary, the deceased can decide how and when the money is distributed.
- Additional FDIC Protection: Typically, individual bank accounts are only FDIC protected up to $250,000. With a living trust, an additional $250,000 in protection is added per each beneficiary (up to five). When there are six or more beneficiaries, an additional $250,000 in protection is added for each in some cases.
- Privacy: Unlike a will, a living trust is not part of public record except in cases of litigation.
- Minor Children: A revocable living trust cannot be used to name a guardian for minor children or for naming a manager for the property of children.
- Taxes: Estate and inheritance taxes will not be eliminated or reduced when property is titled in a living trust.