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When you’re planning for the future, a revocable trust might be one of the tools in your estate planning toolbox. You’ve probably heard it’s a great way to protect your assets and ensure they’re distributed according to your wishes after you pass away.
But, who really owns the property in a trust?
You’d be surprised to know that in a revocable trust, technically, it’s the trust itself that owns the property and not you, giving you the advantage of retaining control and use of the assets while enjoying streamlined estate planning and potential asset protection.
In this article, we’ll pull back the curtain on revocable trusts and dive into their inner workings. We’ll explore the trustee’s role, discuss how these trusts impact your taxes, and explain the benefits of transferring your property into a trust.
A revocable living trust is a legal arrangement where a person (grantor) transfers assets to a trustee to manage on their behalf during their lifetime, with the ability to modify or revoke the trust at any time. In most cases, the grantor of a revocable trust also acts as the trustee, retaining full control over the trust assets and management during their lifetime.
This means you have the liberty to decide how your assets will be managed during your lifetime and can specify terms for distribution upon your death, all within a framework that provides for smooth transitions and minimal disruptions.
The most appealing part about a revocable trust is its flexibility; it allows you to make alterations or completely revoke it at any point during your life – hence termed Trust Revocation.
If circumstances change – due to relationships, financial status, or even personal preferences – you can always adjust the terms of your trust accordingly without going through complicated processes or facing severe penalties.
This dynamic nature extends beyond your lifetime; beneficiaries may continue to benefit from tailored distributions based on their needs or situations as defined by you initially. This way, you’re ensuring maximum asset protection and fulfilling an innate desire to serve others effectively and efficiently on an ongoing basis.
A trustee’s job is to manage and distribute assets according to the trust terms. This responsibility often requires careful judgment and discretion.
In a revocable living trust, the trust creator typically serves as their own trustee during their lifetime. In the trust document, you must also appoint a successor trustee, who will take over the management and distribution of the trust assets once you pass away or become incapacitated.
Trustee accountability is paramount; you must keep detailed records of every transaction related to the trust property and regularly report these activities to the beneficiaries.
Some tasks that fall under your purview include:
Acting as a trustee is more than just taking care of financial matters; it means honoring someone’s last wishes and ensuring their legacy lives on through the fair distribution of their hard-earned wealth. It’s an opportunity for you to serve others by delivering on this vital responsibility with diligence and dedication.
The grantor, the one creating the trust, still retains ownership during their lifetime; consequently, all income generated by the assets in the trust is taxed to them individually. Any interest, dividends, or rental income will appear on their personal tax return.
Capital Gains Considerations are another key area to pay attention to regarding revocable trusts. When property held in such a trust appreciates and is sold, capital gains tax comes into play. However, an advantage lies here; upon the death of the grantor, property in a revocable trust receives what is termed a ‘step-up’ in cost basis equalling fair market value at the date of death – which could mean substantial savings on capital gains taxes for beneficiaries when they sell these properties later on.
Complexity increases with each new layer added: planning for estate transfers while considering potential tax liabilities requires professional advice tailored to individual circumstances and unique financial goals.
Transferring property to a revocable living trust offers numerous advantages, making it an attractive estate planning option. Here are a few reasons why:
A revocable living trust simplifies estate distribution, protects assets, and ensures your wishes are upheld, making it a valuable tool in estate planning. If you’re interested in creating a comprehensive estate plan tailored to your needs, our team at Cary Estate Planning is here to assist you.
Our attorneys can help you set up a revocable living trust and guide you through the intricacies of estate planning to secure your legacy for future generations. Contact us today for a consultation and take the first step towards protecting your assets.