Revocable Living Trusts (RLT)

What is a Revocable Living Trust?

A Revocable Living Trust (RLT) is a document created prior to death to manage assets. It dictates how the remaining assets are to be distributed after death.

The person who creates the RLT may be called the “Grantor” or “Settlor” or “Trustor”.

The person responsible for the management of the trust assets is the “Trustee.” Typically, the individual who has created the RLT is the Trustee as well while that person is alive. A Successor Trustee is named in order to manage the Trust after the death of all the initial Trustees.

The RLT is considered revocable because it may be modified or terminated during the lifetime of the Trustor as long as Trustor has the legal capacity to do so.

How are assets managed in a Revocable Living Trust?

The Trustee invests and manages the trust property. Most RLTs allow the Trustor to withdraw money or assets from the Trust at any time, and in any amount. If a Trustor becomes incapacitated, the Trustee is authorized to continue to manage the trust assets, pay bills, and make investment decisions. This may avoid the need for a court-appointed guardian of the property in the future.

Upon the death of all the Trustors, the Trustee is responsible (among other things) for paying all claims and taxes, and then distributing the assets to the beneficiaries as the Trust dictates.

How are assets placed in a Revocable Living Trust?

Assets, such as bank accounts, real estate and investments (mutual funds and stocks),must be formally transferred to the Trust before death to get the maximum benefit from the Revocable Living Trust. This process is called “Funding” and requires changing the ownership of the assets to the name of the Revocable Living Trust. Assets that are not properly transferred to the Trust may be subject to Probate.

It is important to be very careful with certain assets (such as retirement accounts). These should not be transferred to a Revocable Living Trust. Always consult with an attorney,tax advisor and investment advisor first prior to transferring or changing ownership on
any asset.

Who may act as Trustee or Successor Trustee?

The choice of a Trustee is extremely important. Almost anyone can be named as a Trustee (with limitations of course). A Trustee does not have to live in North Carolina or be related to the Trustor. The Trustor can name another person (a family member or friend) or a corporate trustee (such as a bank or trust company).

Regardless of who is chosen, consideration must always be given to the person’s qualifications, the potential for friction with other beneficiaries, and the potential burden being placed on that individual. The trust agreement should allow the Trustee to hire
qualified professionals to assist them in their duties, such as attorneys, accountants and financial advisors.

Does the Revocable Living Trust provide protection from creditor’s claims?

In North Carolina, the Trust assets are not protected from the claims of creditors. Prior to death the assets in a RLT are treated as owned by the Trustor and subject to the claims of the Trustor’s creditors as if the Trustor still owned them in his or her personal name. If the trust assets remain in Trust after death, the interests of the beneficiaries may be protected from their creditors by a “spendthrift” provision in the trust agreement.

North Carolina law provides special protection for many types of assets, including assets owned by a husband and wife as “tenants by the entirety.” Consideration should be given to these assets when you decide how to fund your Revocable Trust. An attorney can advise you on the types of assets that offer creditor protection and the effect of Funding your Trust with them.

Do you need to be wealthy to have a Revocable Living Trust?

NO! In my opinion, the decision to have a RLT should not be based exclusively on how much you are worth. If you are a private person and you want to continue that privacy for your family after your death, then the RLT may be an appropriate estate planning tool to accomplish that. If you prefer to keep future legal fees down and pass more assets to your family in an often times quicker manner, then you should consider a RLT.

Each person’s reason or reasons for choosing a RLT is different. Don’t let anyone tell you that you NEED a RLT. Only you can make the decision whether it is an estate planning tool that is appropriate for you and your family as well as your goals.

Figure out what estate plan options are available to you. Call our Charlotte estate planning firm at 704-843-1446 or contact us by email and let us help you.

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