The revocable living trust is one of the most talked-about estate planning tools, but it is often misunderstood. Some believe a trust will slash taxes or shield savings from creditors while others assume they’re only for the wealthy.
An estate planning attorney can evaluate your finances and explain how a revocable trust can benefit you, including its impacts on your taxes and savings.
The Basics: Grantor, Trustee, Beneficiary
A trust is a legal arrangement in which one party holds property for the benefit of another. With a revocable living trust, you typically play all three roles at once during your lifetime:
- Grantor: creator of the trust
- Trustee: manages trust assets
- Beneficiary: enjoys the use of trust assets
A revocable trust allows the grantor to amend the trust, move property in and out, or cancel it.
Principal Purposes of a Revocable Trust
The principal benefit of a revocable trust is avoiding probate, which is the process of validating a will, paying creditors, and affirming heirs after the property owner’s death. By avoiding probate, assets pass directly to the beneficiaries named without district court involvement. This saves time and reduces costs. A typical probate process in Oklahoma can take up to a year.
Your affairs are private if your assets pass to heirs through a trust. Unlike a will that becomes part of the public record, a trust is administered privately.
Plans for incapacity are covered by a trust. If you are unable to manage your finances, your successor trustee can pay bills, manage investments, and maintain property held in a trust (managing any assets outside the trust requires a power of attorney). This avoids a court-supervised guardianship.
A trust can hold an inheritance for a child until a specific age, it can stagger payments, or set conditions, rather than handing over a lump sum the day the estate closes.
Things A Revocable Trust Does Not Do
A revocable trust does not protect assets from creditors. Creditors, lawsuits, and nursing home costs can generally tap into your assets during your lifetime. In order to protect assets, an alternative vehicle like an irrevocable trust is usually created.
Revocable trusts do not reduce taxes. Trust assets remain part of your taxable estate and income the trust earns is reported on your personal return. The good news is that Oklahoma does not impose an estate or inheritance tax, and federal estate tax applies only to the portion of an estate exceeding $15 million.
A trust does not replace a will. Every trust should have an accompanying “pour over” will that catches any assets left outside the trust and directs them into it. A will is also the only document that can nominate a guardian for minor children.
Don’t Skip The Funding Step
A trust only controls assets that are actually titled in its name. Signing a trust document is not enough; you must also deed your real estate to the trust, retitle bank accounts, and update beneficiary designations where appropriate. An unfunded trust is a common estate planning failure, because assets left in your name may still require probate. Oklahoma homeowners who transfer their residence into a revocable trust should also confirm with the county assessor that their homestead exemption carries over.
Deciding If a Trust is Right For You
Whether a trust fits your situation depends upon what you own, who you want to protect, and how much court involvement you want your family to face. Kincannon Law’s attorneys can review your assets and goals, explain your options, and build an estate plan that does what you need it to do. Call for a consultation today.