The Truth About Revocable Living Trusts: Beyond the Basics 🔍⚖️

Funding Your Revocable Living Trust: Steps Necessary to Employ the Powerful Planning Tool

As Your Counsel, we understand that estate planning is a critical component of ensuring your assets are protected and distributed according to your wishes. In our previous article, we unpacked probate in order to understand the process and its potential benefits. Today, so that we can further explore, educate, and emphasize the various options, we’ll focus on logistics and the steps necessary after creating a trust, i.e. Funding Your Revocable Living Trust.

What is a Revocable Living Trust?

A revocable living trust is a legal arrangement created during your lifetime that allows you to control assets while you are alive and dictates how those assets will be managed and distributed upon your incapacity or death. As the name suggests, a revocable living trust can be modified or revoked by you at any time, providing flexibility as your circumstances change.

The Living Trust must be written, and there are formal requirements for its are execution and acknowledgment. Where the Grantor is unmarried, s/he would usually be sole and initial Trustee with a trusted individual named as the successor. Where the Grantor is a married couple, the spouses generally are named as co-Trustees on each other' s trusts. The execution of a "Pour Over Will” allows the Testator's assets to "pour over" into the Living Trust and be distributed by the Trustee in accordance with the terms of that Living Trust.

How Does a Revocable Living Trust Differ from Probate?

While both a will and a revocable living trust can be used to distribute assets upon death, there are several key differences between the two:

1. Control During Incapacity: If you become incapacitated, a revocable living trust allows your chosen successor trustee to manage your assets without the need for a financial power of attorney or court-supervised conservatorship. This can provide a seamless transition of control and avoid the time and expense of potential court proceedings.

2. Time and Cost: The probate process can be time-consuming and expensive, often taking several months to a year or more to complete. A properly funded revocable living trust can help your beneficiaries avoid probate entirely or qualify for the Oregon specific vehicle of a small-estate probate, allowing for a faster and more cost-effective distribution of assets.

3. Privacy: Probate is public, meaning that your will and the details of your estate become part of the public record. In contrast, a revocable living trust is a private document, and the distribution of assets within the trust remains confidential.

Benefits of a Revocable Living Trust in Oregon

1. Avoiding Ancillary Probate: If you own real estate in another state, your estate may be subject to ancillary probate in that state. This means that your executor will need to navigate the probate process in multiple jurisdictions, adding time and expense to the settlement of your estate. A revocable living trust can help you avoid ancillary probate by transferring ownership of out-of-state property to the trust.

2. Ease of Asset Management During Incapacity: A fully funded revocable living trust ensures that your chosen trustee has immediate control over your assets in the event of your incapacity. This can be particularly important if you do not have a Power of Attorney in place, require long-term care or are unable to manage your finances due to illness or injury.

Funding Your Revocable Living Trust

To maximize the benefits of a revocable living trust, it is essential to ensure that the trust is properly funded. This means transferring ownership of your assets from your individual name to the name of the trust, after receiving lender’s approval (if any asset has financing). Common assets that can be transferred to a revocable living trust include:

1. Real estate

2. Bank accounts

3. Investment accounts

4. Personal property

5. Business interests

For other assets, such as life insurance and retirement accounts, you will make beneficiary changes to properly distribute those assets upon your death. The beneficiary will not necessarily be your Revocable Living Trust

By establishing a fully funded Living Trust, there will be no assets of significant value left decedent's name, no need to probate the Will, and therefore no requirement to follow the statutory requirements of obtaining jurisdiction over interested parties.

We cannot overemphasize the importance of having a fully funded Revocable Living Trust. An unfunded or partially funded Revocable Living Trust does not avoid probate. Generally, to transfer assets to your trust, you must execute new documents of title, deeds to real property, and signature cards for your bank accounts, as well as change of beneficiary forms for pension plans, individual retirement plans and life insurance. Your financial advisor, accountant, broker, or life insurance agent may need to help you make ownership or beneficiary changes. 

These assets may include your accounts, real property, business interests, insurance policy proceeds, or any other property.  You should keep a schedule of assets contributed to the Trust, adjusted from time to time for sales, purchases, or other changes, so that not only the current Trustee, but any future or successor Trustee, will know what assets are owned by the Trust at any given time.

Potential Disadvantages of a Revocable Living Trust

Of course, a Revocable Living Trust may not be right for everyone, as there are some disadvantages to consider, such as:

1. As described above, the Living Trust must be fully funded during the Grantor’s lifetime, which requires the retitling of the Grantor's assets (after lender’s consent) to the Trust.

2. Although a Living Trust can provide a vehicle for ease of asset distribution or estate tax planning, the same can be provided by a properly drafted Will.

3. A Living Trust established during the life of the Grantor does not provide any asset protection benefits to the Grantor since the Living Trust is fully revocable. Therefore, the assets contained in the Trust are accessible by the Grantor's creditors.

4. Creating a Revocable Living Trust is generally more costly and when a client has a Living Trust, any revisions to his/her estate plan tend to be more complicated and costly than simply adding a codicil to a Will.

Protecting Your Children’s Inheritance through a Testamentary Trust

Another estate planning option to consider is a Lifetime Protection Trust (LPT), which is a form of a testamentary trust. Unlike a revocable living trust, an LPT is created through your last will and testament and only comes into existence, if necessary, at the time of your death.  

This type of trust can be particularly useful for providing long-term financial support and protection for your beneficiaries, especially minor children or those with special needs. 

In an LPT, the guardian typically serves as the trustee and is given the authority to provide for the beneficiaries' Health, Education, Maintenance, and Support, plus an additional 5% of trust assets annually (often referred to as HEMS+5). This structure allows for flexibility in meeting the beneficiaries' needs while also providing a measure of financial discipline. The trust can be designed to distribute assets at specific ages or milestones, ensuring that your beneficiaries receive their inheritance when they are mature enough to manage it responsibly.

An LPT can offer many of the benefits of a revocable living trust, such as asset protection and controlled distribution, without the complexity of funding and managing the trust during your lifetime.

Conclusion
Estate planning is important for everyone. However, no single estate planning vehicle is right for everyone. A revocable living trust is a powerful estate planning tool that offers numerous benefits for Oregonians seeking to protect their assets, provide for their loved ones, and ensure a smooth transition of wealth. By avoiding probate, maintaining privacy, and providing ease of asset management during incapacity, a revocable living trust can save your family time, money, and stress during an already difficult time. However, it is important to fully understand the logistics and legal steps necessary to fund the trust for it to be effective.

As Your Counsel, our knowledgeable attorneys can guide you through the process of creating a comprehensive estate plan that incorporates a revocable living trust and other essential documents, such as a will, durable power of attorney, and advance directives.

Our team will take the time to understand your unique circumstances, goals, and concerns, and help you determine whether a revocable living trust is the best fit for your needs. By taking proactive steps to plan, you can ensure that your wishes are carried out, your assets are protected, and your family is provided for. As Your Counsel, we’re focused on supporting and advising as we navigate the complexities of estate planning in order to create a plan that works for you.