A Brief Introduction About Revocable Trust
A lot of people want to protect their wealth from taxes or want to pass it on to their children. A “Trust” is a fiduciary arrangement or a legal channel that allows assets to be transferred to a trustee (third party) by the grantor on behalf of a beneficiary or beneficiaries. Managing the assets is not an easy job for many people, so by taking the help of a “Trust,” you can relieve yourself from a lot of legal work and trouble and your loved ones from the hassle. Uses of Trust. It should be noted that the grantor not only decides who should get the assets but also how the money will be paid.
Moving forward, a “Trust” can be of two types, Revocable Trust and Irrevocable Trust. There is a very crucial and important difference between Revocable and Irrevocable Trust, as the names suggest. Revocable Trust is the one that can be revoked or canceled depending on the grantor. This kind of Trust provides a lot of flexibility and income to the grantor when he is alive and distribute the assets to the beneficiaries only in the event of his death. This is completely opposite of an Irrevocable Trust.
A Revocable Trust Agreement is created by the grantor, between him and the trustee, mentioning all the details of the beneficiary and how the assets will be paid out. Such agreement holds the property and assets of a grantor to pay it out to their family members, grandchildren, or any other beneficiary upon the grantor’s death.
Other names of Revocable Trust are Living Trust and Revocable Living Trust.
Who Takes the Revocable Trust? – People Involved
There is a notion in some people’s minds that only wealthy families opt for Trust Funds or Revocable Trust, but the truth is far different from this. Trusts are being used by people with an economic background too. Anyone who wants to give access to their assets to the beneficiary and wants flexibility while doing this can create a Revocable trust. In simple terms, a grantor makes the Revocable Trust Agreement involving a trustee and beneficiary or beneficiaries.
Purpose of the Revocable Trust – Why Do You Need It?
Like any other Trust, the purpose of Revocable Trust is to give assets’ access to a beneficiary, but in addition, it makes sure that the grantor maintains control over trust fund as long as he lives. Revocable Trust also avoids the expenses and hassles of probate, preserving privacy and preparing your estate for ease of transition after the grantor’s death.
It should also be noted that in this case, if the grantor becomes too ill or incapable of managing his assets, then the trustee steps in. The Agreement will, of course, set out rules for such a specific scenario.
Revocable Trust also addresses what Wills don’t, and hence, they are preferred more nowadays. In the fight between Will versus Revocable Trust, the latter one is more flexible.
What remains a little unmentioned about the Revocable Trust is that it allows someone to manage your property for your lifetime and allows you to still earn income on that.
Purpose of the Revocable Trust in pointers –
- To provide authorization to a third party to manage your assets and property
- To get the flexibility of revoking or canceling the Trust or its provisions
- To transfer the control to a beneficiary (beneficiaries) only upon grantor’s death
- For smooth management of assets and income flow
- To protect the assets
- To avoid the expenses and hassles of probate and preserving the privacy
- To avoid court proceedings
Contents of the Revocable Trust – Inclusions
Evidently, A Revocable Trust Agreement is one of the most key documentation work that you will do. It is highly suggested that you should first know the difference between different kinds of Trusts and Will. Once you have made your mind about opting for Revocable Trust, the process of drafting the agreement begins. Goes without saying, this agreement requires a lot of precision and adequate details.
The Revocable Trust Agreement will include the names and all other basic details of the grantor, trustee, and beneficiary or beneficiaries. In some cases, grantor and trustee can be the same too, but then, it is necessary to provide the name of another trustee (Trustee number 2).
Further, the agreement must mention the details of all assets that the grantor wants to distribute after his death, such as bank accounts, cash, properties, stocks, etc. with the names of the beneficiaries for each. The agreement must also have instructions about how the assets will be paid out.
Sometimes, the trustee also demands compensation. In such a case, the details of it must be mentioned the Revocable Trust Agreement. It must include information about the governing law, dispute resolution, and provision, depending on the individual’s case.
The agreement must mention the terms and conditions of A Revocable Trust to avoid conflicts and confusion in the future. It must also include the details of how the income will be paid out to the grantor before his death if he wants.
How to Draft the Revocable Trust?
There is more than one option available for the grantors to choose from when it comes to allowing a third party to manage the trust. Depending on your requirements, you must choose carefully. It is only after researching all the available options, their pros & cons, their need, their risks, etc., you can choose the best-suited option for yourself.
Once you decide that Revocable Trust is what you want to go for, start by searching for a reliable trustee. It is extremely important to appoint a trustee that you can trust. Further, the details of the properties, personal assets, etc. that you want to put in the Trust are the most important inclusions of the agreement, so deciding on which part of it goes to whom and how is something you must devote a fair amount of time on.
Some states also allow privacy of such Trusts. One must try to explore all the available options.
After drafting the agreement, the grantor will have to transfer the property into the Trust. This can be done by declaring the trustee, the owner of the grantor’s assets.
As a grantor, if you wish, you can negotiate with the trustee about his compensation. Trustees sometimes can ask for the unreasonable amount, but you must consider the difficulty of work, a task assigned to him, the risks involved, the quality of his performance, etc. before deciding his compensation.
Benefits & Drawbacks of the Agreement
Estate planning is something that everyone needs to think about at a particular stage in their life. Some people still wonder why should they for Trust when a Will is their convenient option. But, reasons such as freedom to cancel the provisions or revoke them, flexibly, tax protection, etc. make Trust a viable option too.
Here are certain benefits of A Revocable Trust –
- Flexible, revokable, changeable and cancelable
- Avoids the hassle of probate
- Avoid the hassle of lengthy legal proceedings
- Reduces the expense of court meetings
- Incurs less cost and hassle overall because of a trustee’s involvement
- Provide privacy
- May reduce certain state estate taxes
Here are a few drawbacks of A Revocable Trust –
- Tax benefits are not certain
- A trustee will charge compensation, and sometimes that can be expensive
- Funding a trust can be painful
- Assets must be registered in the name of the trustee
- It can be time taking in the beginning
What Happens in Case of Violation?
If a trustee ends up committing fraud, the grantor has the option of taking help from courts. Grantors are protected by any such theft, fraud, or breach. However, all the trustees and the grantor need to clear out these things before signing the agreement. The agreement should also have the rules specified and details of the governing law.
In case of a breach by the trustee(1), the grantor also has the right to remove him and hire a new trustee after signing a petition in the court. The trustee is required to have proper recordings of accounts to save himself from unnecessary trouble. Sometimes, the trustee can come under a scanner if genuinely makes a mistake without the actual intention of fraud.
In the end, it is extremely important to take legal advice while dealing with something as important and as crucial as Revocable trust. There can be some general information about the Trust, Revocable Trust, Will, etc. (1). and the difference between all of them on the Internet, but for drafting the agreement, you must take professional help.
Taxes are another very important detail of the Revocable Trust. There are many misconceptions that this Trust saves the grantors or his beneficiaries from taxes, but that is not always true. One must study the individual case properly and explore the nitty-gritty of it. For instance, Joint Revocable Trust is also one of the options that people might want to consider.
Revocable Trust, not only affects the individuals who have signed the agreement but also the entire family of the grantor. However, it is a very important and useful document if used with caution and diligence.