Revocable Trusts in estate planning.
What is a Revocable Living Trust or RLT?
A RLT is a trust created by a client (called “Grantor,” “Settlor,” “Trustor,” “Trustmaker,” etc.). The client has full right to amend and revoke the trust or any provision thereunder during the client’s lifetime. A RLT, can provide detailed instruction and authority for a client’s family in the event of his/her disability. A RLT if funded, can also avoid the need for probate and provide for effective distribution of assets at death to heirs outright or in lifetime asset protection trusts. The client retains access to all income and all principal from the trust at any time. All assets in a RLT remain available to the client’s creditors, predators and long-term care costs and are considered “available” for purposes of Medicaid qualification and Veterans Benefits eligibility.
Some of the useful features of the RLT are
- Client retains right to income and principal from the trust.
- Client can be sole or co-trustee.
- Client retains the right to modify or revoke the trust in any manner at any time.
- Pure grantor trust under IRC §§671-678 (income) and IRC §§2036-2042 (estate).
- Client can provide extensive “directions” for use of assets and income in case of disability.
- Client can pass assets to beneficiaries in asset protection trust with personalized instructions.
How RLTs can be used
- Clients who wish to provide extensive instructions and authority in event of disability.
- Clients who want to avoid probate and get their assets to their beneficiaries effectively and timely.
- Clients who want to maintain full control and access to all assets at all times.
- Clients who want to provide asset protection to their heirs after death or to protect against “spend thrift” or loss to disabled beneficiaries care costs.
What are the Benefits of RLTs
- Income and principal available to client and client can terminate at any time.
- Keeps client affairs private (don’t have to share with children or public).
- Retains ownership for full step-up in tax basis to asset values at death.
- Permits assets to be distributed to beneficiaries in asset protection trust.
- Can protect assets from creditors, predators or long-term care costs needed for community spouse after client’s death.
Issues to consider when making a RLT
- Transfers “to” or “from” will be subject to a look back.
- All assets are considered “available” to Medicaid and other creditors.
- Standard vs Personalized Planning options
- Commitment (transaction or relationship)
While this article focuses on the many features of revocable trusts in an estate plan there are numerous considerations that factor in to a clients situation and significant reasons not to utilize. Every client considering trusts in their estate planning should consult competent counsel to evaluate their individual situation.
The estate planning attorneys at Spitler Huffman law firm have substantial experience in creating an estate plan to fit their clients needs. Located in Bowling Green and Rossford, Ohio we are dedicated to serving clients in Northwest Ohio including Wood, Henry, Hancock, and Sandusky Counties. If you live in Bowling Green, Findlay, Perrysburg, Napoleon, Port Clinton, Fremont, Rossford, or other areas in Northwest Ohio and need estate planning assistance, contact us today.