For many United States citizens, the revocable living trust has become the go-to document for planning the bulk of their estates. While other documents (most notably, a will) will still be required, including a revocable living trust as part of a comprehensive estate plan often gives expats the control that they need and the flexibility that they desire both during and after their lifetime.
What is a Revocable Living Trust?
A revocable living trust (sometimes just called a “revocable trust” or “living trust”) is an estate planning tool that keeps assets out of probate. Probate is the court-supervised process for administering a person’s estate after death, and it can often be an expensive and time-consuming ordeal. Probate can become even more complicated (and even more expensive) if a person dies with property in multiple states or multiple countries; and, as a result, for most people, much of the estate planning process focuses on constructing a plan that avoids probate.
So, how does a revocable living trust keep assets out of probate? When you establish a revocable living trust as part of your estate plan, any assets that you transfer into the trust become the trust’s property. You (or your designated “trustee”) retain control over the trust; however, since the trust now holds title to your assets, your assets are no longer subject to the probate process.
But, this only works for assets that get transferred into the trust. This is why it is critical to still have a will, even if you have a revocable living trust. You do not want your non-trust assets to go through probate without having a will in place that says who should get what.
How Does a Revocable Living Trust Work?
To explain how a revocable living trust works, we first need to address some of the basic terminology used in reference to trusts:
- Revocable – If a trust is “revocable,” this means that it can be modified or terminated prior to death. In addition to revocable living trusts, there are various types of irrevocable trusts (including the special needs trust), as well.
- Living – To refer to a trust as a “living” trust is simply to say that it was created during a person’s lifetime. In some circumstances, it can make sense to build an estate plan that calls for one or more trusts to be established after a person’s death.
- Grantor, Trustor, or Settlor – All of these terms refer to the person who establishes and transfers assets into a trust for estate planning purposes.
- Beneficiary – A “beneficiary” is a person who is entitled to receive certain assets from the trust.
- Trustee – A “trustee” is the person who is responsible for administering a trust once it has been established.
With a revocable living trust, the trustor establishes the trust and generally names himself or herself as both a beneficiary and a trustee. As a beneficiary, the trustor retains access to the assets transferred into the trust. As trustee, he or she retains control over how the trust is administered. This means that the trustor generally has the same access to the trust’s property as he or she would have without a trust, but with the added security of knowing that this property is already covered by an estate plan.
Since revocable living trusts are used for estate planning, the trustor will also need to name a trustee and one or more beneficiaries who will administer the trust and receive the trust’s assets after the trustor’s death. The trust’s documentation can either call for distribution of the trust’s assets immediately upon the trustor’s death; or, it can call for delayed gifts, gifts that are subject to certain conditions, or gifts that are paid out over time.
What Are the Benefits of Using a Revocable Living Trust in My Estate Plan?
Revocable living trusts offer a number of valuable benefits. We’ve already covered two of the big ones: Maintaining control of assets, while shielding them from the probate process. Some of the other benefits of incorporating a revocable living trust into your estate plan include:
- Reducing or Eliminating Estate Taxes – Transferring assets into a revocable living trust may provide some estate tax benefits by allowing both spouses to utilize their individual estate tax exemptions. Under current federal estate tax laws, each individual has an estate tax exemption that allows a certain amount of assets to be transferred upon their death without incurring estate tax. By holding assets in a trust, both spouses can maximize their individual estate tax exemptions and potentially reduce or eliminate any estate tax owed upon their deaths. However, it’s important to note that a revocable living trust does not completely avoid estate taxes, and other factors should be considered when creating an estate plan.
- Avoiding Jurisdictional Issues – Some countries’ laws do not recognize wills executed in the United States; and, in some cases, signing a will overseas can void a will signed in the U.S. A revocable living trust will often be the best tool for expats to avoid these types of issues (not to mention helping their families avoiding international probate).
- Avoiding Issues, Should You Become Incapacitated – In addition to naming a trustee to take over upon your passing, with a revocable living trust, you can also name a trustee to manage your assets in the event that you become legally incapacitated. A person’s incapacity can sadly lead to a host of legal complications for his or her family members, and establishing a revocable living trust can help one’s family avoid dealing with guardianships, conservatorships, and other issues.
- Privacy – Probate proceedings and court filings are generally open to the public. By using a revocable living trust to distribute your property, you can keep your finances and other personal matters private.
What Are the Limitations and Drawbacks of Using a Revocable Living Trust?
Of course, with benefits come limitations, and revocable living trusts certainly have a few. However, in most cases, these limitations will not outweigh the factors that weigh in favor of establishing a revocable trust. Some of these limitations include:
- Administrative Requirements During Your Lifetime – Once you transfer property into a trust, getting it back out of the trust can involve a little bit of extra paperwork as compared to selling something that you own directly.
- Assets Need to Be Transferred in Order to Avoid Probate – If you acquire new assets after you establish your trust, you need to affirmatively transfer them into your trust, in order to keep them out of probate.
- Certain Other Benefits May Not Be Available – There are reasons why people use irrevocable trusts when the option of a revocable trust is available. There are numerous different types of irrevocable trusts, and each one has its own unique benefits. For example, with a special needs trust, you can provide for a disabled loved one’s care without affecting his or her eligibility for government benefits.
As a result, in many cases, individuals will use a revocable living trust along with various types of irrevocable trusts, beneficiary designations, powers of attorney, and other estate planning documents. The key is to thoughtfully and carefully craft a plan that addresses your specific needs, while taking into consideration your unique personal and family circumstances.
Are You Ready to Put Together Your International Estate Plan?
If you are considering a revocable living trust or have questions about international estate planning and would like to speak with an attorney, contact Jiah Kim & Associates for an initial consultation. Call us worldwide at (646) 389-5065 or schedule your consultation online and get started with your estate plan today.