Revocable Living Trust
What is a revocable living trust?
A revocable living trust or “intervivos trust” is a legal device that can be used to manage your property during your lifetime and to distribute your property after your death. A revocable living trust is established by a written agreement or declaration, which appoints a "trustee" to administer the property transferred to the trust, and which gives detailed instructions on how the property is to be managed and eventually distributed. If you want your trust to substitute for a probate proceeding (court administration of property after death), you must give the trustee detailed instructions about how to handle these situations, and you should legally transfer substantially all of your property to the trustee. A revocable living trust agreement or declaration is usually longer and more complicated than a will.
Who can be the trustee?
In Oregon any competent adult can be the trustee, including the person setting up the trust. An Oregon bank or trust company can also act as trustee. A professional fiduciary that is not an Oregon bank or trust company can act as trustee, if a court appoints it and it posts a bond. You can appoint more than one trustee, delegating different duties to each trustee if you wish, and you can retain the power to remove the trustee and appoint a new one. Appointing a successor trustee is essential if you are the first trustee and the trust will carry on after you die or become incapacitated.
How is a revocable living trust established?
If a revocable living trust is appropriate for you, you will need a written agreement or declaration of trust, which sets out your plan for management and distribution of your assets. Then you must legally transfer all trust assets to the trustee. Deeds, stock transfers, new bank accounts and other legal documents may be necessary. Assets not formally transferred to the trustee will not be considered part of the trust and might still be subject to probate.
You must also have a will to ensure that any property not properly placed in your trust before death can be transferred to it after death.
At your death your will can transfer up to $50,000 of personal property and $150,000 in real property to your trust through an affidavit filed with the court. Your will can transfer assets of greater value to your trust through the probate process. You can also have life insurance and certain pension accounts paid directly to the trust.
Here is an example of how trust assets should be registered: "John Doe, Trustee Under the Marty Smith Trust Agreement Dated January 1, 2009." The trustee should not hold trust assets individually as "John Doe" without the additional information. The trustee must keep separate records for trust assets and might have to file separate income tax returns for the trust. If the trustee does not obey these rules, the trust may not avoid probate.
Does a revocable living trust avoid taxes?
By itself, a revocable living trust does not avoid income, estate or gift taxes. Provisions for saving estate and gift taxes can be included in a revocable living trust or in a will. Whether your assets are held in a trust or not, a state estate tax return must be filed after you die if your property exceeds $1 million in value, and a federal estate tax return must be filed after you die if your property exceeds $3.5 million in value for the year 2009. (The federal exemption becomes $1.0 million in 2011.) You should not set up a revocable living trust just to save taxes.
What does a revocable living trust cost?
The exact cost of a revocable living trust depends on how complicated your assets and your estate planning goals are, how many assets must be transferred to the trustee, and whether tax planning is needed. Before you direct an attorney to set up a trust for you, ask for estimates of how much it will cost, how much writing a will would cost and how much probating your estate would cost.
If you do not plan to serve as your own trustee, you should consider any fees you might want to pay the trustee and whether those fees would replace fees that you are already paying to manage your assets.
A revocable living trust plan should include the trust document, the transfer of assets to the trust, a "pour over" will to add any other assets to the trust, and a durable power of attorney. It also might include related legal documents, such as an advance directive regarding medical decisions and a certification of trust, which summarizes important trust terms and information.
Advantages of a revocable living trust
Avoidance of probate. In particular, a revocable living trust can avoid expensive multiple probate proceedings when you own real estate in several different states, as well as the publication of the otherwise private financial details of your estate.
Avoidance of conservatorship. A revocable trust can avoid the additional cost of a conservatorship in the event of your incapacity.
Efficient distribution. A revocable trust can reduce delays in distributing your property after you die, although delays caused by filing an estate tax return cannot be avoided.
Confidentiality. Generally the terms of your living trust are confidential, with only your named beneficiaries and trustee having access to that information.
Continuity. A trust can provide continuity of management of your property after your death or incapacity.
Disadvantages of a revocable living trust
Expenses of planning. A revocable living trust is more complicated than a will to draft, and asset transfers can take time and can result in additional costs.
Expenses of administration. If you appoint a bank or trust company as trustee, you will have fees to pay (though these may take the place of investment advisory fees and other fees you are already paying). Setting up a revocable living trust will not eliminate the need for professional services of attorneys and accountants in the future.
Inconvenience. Once the trust is established, you must be sure that trust books are maintained and that all assets continue to be registered to the trustee. Persons dealing with the trustee (such as banks and title insurance companies) may want to review the trust instrument to check on the trustee’s powers and duties.
Unforeseen problems. Revocable living trusts can raise a variety of new issues regarding the ability to borrow against property, title insurance coverage, real estate in other countries, Subchapter-S stock, certain pension distributions, and many other issues. Only a skilled attorney familiar with estate planning can tell you whether, on the whole, a revocable living trust is right for you, your family and your assets.
Complexity. Revocable living trusts often are more complicated than wills and will require your attention and management for an indefinite period of time.
