By Steven J. Gibbs, Esq.
Perhaps in years past, you took the commendable step to have a Revocable Living Trust prepared for yourself and your loved ones. Would you believe that of the thousands of people each year who take this step, a very small percentage even know how to use it or take the steps necessary to do so? If you fall into this category, as part of your New Year’s Resolution you can take action!
The simple fact is…merely having a revocable living trust will offer you and your family “zero” benefits if you do not use it correctly. The following are 7 Key Ways To Use Revocable Living Trusts.
First, a Revocable Living Trust must be “Funded” or it is useless. A Revocable Living Trust is a contract between the person who sets up the Trust (the “Settlor” or “Grantor”), and the Beneficiaries. The Settlor also appoints a Trustee to oversee the administration of the Trust Assets on behalf of the Beneficiaries. The Settlor often is the initial Trustee and the initial Beneficiary.
The Trustee is responsible for the Trust Assets, so the next question is whether the Trust has any assets AND how does it receive assets?
A Trust without assets is an empty shell.
To “Fund” a Revocable Living Trust means to title assets in the name of the Trust. For example, if the Settlor owns real property, it should be transferred to the Trust by a deed. If this is not accomplished, the intent of the Settlor to avoid probate will backfire. Similarly, for bank accounts and other “non-qualified” accounts such as CDs, stocks or bonds, the name of the Trust may be placed in title the account. For qualified accounts such as IRAs and Annuities, the beneficiary or “contingent beneficiary” may be designated as the Trust.
Second, a Revocable Living Trust can offer asset protection for Beneficiaries.
It is common practice to direct the Trustee to immediately distribute the assets to the beneficiaries upon the Settlor’s death. However, is an immediate distribution of the assets is the best use of a Trust? As I’ve often mentioned, we live in a litigious society and a properly drafted Revocable Living Trust can provide protection from creditors for the Settlor’s beneficiaries.
Third, a Revocable Living Trust with “Special Needs” provisions can allow disabled beneficiaries maintain eligibility for public benefits.
Sometimes, a beneficiary who receives public disability benefits can be penalized if he receives a lump sum. Well drafted “special needs trust” provisions can serve as a supplemental fund and allow the beneficiary to continue receiving public benefits for disability. Currently, “Special Needs Trusts” can only be established by a parent, grandparent legal guardian or a Court. So, a Revocable Trust established by a parent for an adult child or grandchild can accomplish this protection for the beneficiary on disability.
Fourth, a Revocable Living Trust can provide key estate planning protection for those in second marriages with children from prior marriages.
With today’s divorce rates and increased life expectancy, there is often a need to plan for both a current spouse and children from prior marriages. A properly drafted Revocable Living Trust can provide that the surviving spouse will be contractually obligated to comply with the Settlor’s wishes, and the surviving spouse may be prohibited from changing the Trust and disinheriting the children of the first marriage. Another possibility to create an “Elective Share Trust” to limit the spouse’s share of the estate.
Fifth, a Revocable Living Trust can provide options for allowing an ill spouse to qualify for Medicaid benefits.
Under the Federal Medicaid Rules, spouses may (generally) transfer assets to one another (within certain parameters) in order to allow an ill spouse to qualify for Medicaid. A problem can occur when the well spouse unexpectedly passes away first and the ill spouse is the sole heir to the marital estate assets. By using “elective share” provisions, discussed above, as well as other “Medicaid friendly” provisions allowing the Trustee to manage the estate, an ill spouse can often remain qualified for Medicaid or at least suffer a lesser penalty.
Sixth, a Revocable Living Trust can provide estate tax planning strategies that can offer substantial tax savings.
Properly drafted Revocable Living Trusts can offer key tools needed to maximize the roughly 11 million in Federal Estate Tax exemptions available to a married couple. For single people, a Revocable Trust may be used to manage the Generation Skipping Tax (GST) and may also be used for tax strategies such a Charitable Lead Trusts and Charitable Remainder Trusts.
Seventh, a Revocable Living Trust can offer key advantages for Business Succession Planning.
Most small business owners in the United States have no plan to direct how the company will continue to operate if the “owner” dies or becomes disabled. A Revocable Living Trust can direct the Successor Trustee how to continue operating the business. The Trust should include the necessary provisions to allow the Trustee to Manage small business interests, Subchapter “S” corporations and investment entities such as LLCs and Limited Partnerships.
So, there you have it…the Ultimate Guide to Using Your Revocable Living Trust. As always, you can call or e-mail me any questions.
Until next time.
Steven J. Gibbs, Esq.
Steven Gibbs founded the Gibbs Law Office in January 2009, committed to providing client-centered legal services.
Steve as he would rather be called, is not your typical attorney. If you appreciate the staunch egotistical mannerism of most firms, you will be delighted with Steve’s unpretentious approach to educating and then assisting his client. Instead of giving you his complacent and lofty ideas, he would rather pursue your expectations with professional conversation about resolving your concerns under the Law. It’s your life and it’s his job to make your legal expectations come true while using years of his guidance and knowledge.
Steve was admitted to the Minnesota Bar in 1999, the Florida Bar in 2007 and was recently admitted to the California bar. Keeping abreast of law changes in these three States, as well as the United States, assists him in all aspects of the types of law the firm practices.
Along his career path, he was an associate attorney for an insurance defense law firm; an in-house real estate negotiator for Target Corporation; and corporate counsel for Civix, LLC and Vice President for North American Properties where he was responsible for various real estate transactions, including legal issues and negotiating unresolved business issues. Prior to opening Gibbs Law Office, PLLC, he was an associate with the firm of Roberts & Engvalson, P.A. where he gained his knowledge of trusts, estate planing and Wills. He opened his own firm in 2008 and now focuses on laws that will enrich the needs of his clients throughout their lives and those of their children. The firm has developed a practice dealing only with Trusts and Estate Planning, Wills, Medicaid Planning, Elder Law, Real Estate, Business Law and Probate.
Quoting from Steve “I decided to practice in areas that families will need as they progress down life’s path. To help them with a solid foundation that will carry them throughout there lives is a rewarding experience for me and my staff.”
Gibbs Law
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