Guest column: There are benefits to a revocable living trust
By Carissa Giebel • August 25, 2010
Estate planning is not merely for the wealthy or the elderly. If you own a home or a checking account or a car, you have an estate. Even those with a small estate need some type of plan to transfer property at death.
A will may be sufficient for some, but a revocable living trust is best for others. An RLT is an estate planning tool that directs how assets are handled during lifetime and after death. These trusts are great for protecting assets for beneficiaries and minimizing estate taxes. RLTs also provides an opportunity to avoid probate, which is the legal process through the court, where debts are paid and property is distributed according to the will, or if there is no will, the laws of intestacy.
One of the greatest gifts you can leave your beneficiaries is an asset-protected inheritance. While an irrevocable trust is the estate planning tool used to protect your own assets while you are still alive, a revocable living trust can protect the assets left to beneficiaries. Assets inherited by beneficiaries can be protected from their creditors, lawsuits, bankruptcy, or even a divorce, if the trust is properly drafted.
This means you can leave your land or cottage up north to your son without worrying about your daughter-in-law potentially getting half of it in a divorce. For beneficiaries with special needs, a property drafted trust will protect them so they can receive an inheritance, yet not be kicked off any aid. Some beneficiaries need to be protected from themselves, and a trust can be set up in such a way that beneficiaries receive distributions made from a trustee according to the terms of the trust, rather than having a large inheritance placed in their lap all at once.
Based on current legislation (which could change), starting in 2011, each person can pass assets worth up to $1 million free of estate tax, but anything beyond that is taxed at 55 percent. An RLT can make use of each spouse's $1 million exemption, thus allowing a married couple to pass $2 million to their beneficiaries, free of estate taxes. When a married couple does not have a trust in place, and the first spouse to pass away leaves their assets to the surviving spouse, that surviving spouse can only pass a total of $1 million free of estate taxes at their death. The million dollar exemption of that first spouse was wasted.
With a properly funded RLT, probate can be avoided. Instead, assets are distributed according to the terms of the trust through trust settlement. A trust settlement is preferred over a probate because it is less expensive and takes less time because the court is not involved, and it is private, which means disputes are less likely.
An RLT can provide value for all those who are interested in protecting their children or other beneficiaries and making sure that the inheritance left to them is handled by those you trust and with the privacy you want.