Explanation of a Revocable Living Trust Agreement.new
1. COMMON QUESTIONS ABOUT REVOCABLE LIVING TRUSTS
What is a revocable living trust?
All trusts are written agreements that provide for an individual to manage his or her own
property during their lifetime and hold the assets in the trust and if the Trustor should
become incapacitated or upon their death, the designated Successor Trustee then
liquidates and distributes the Trust Assets to the designated individuals (the beneficiaries).
The management of the property is provided by someone (the trustee) with a special
position of responsibility and duty for the benefit of others. A revocable living trust
(sometimes called a “living trust” or “revocable trust“) is a particular kind of agreement
that you make that says how you want the property that you put into the trust to be
managed and distributed during your life and after your death. This trust agreement can be
changed or revoked. A revocable living trust is unique because you will often serve in all
three positions – donor, beneficiary and trustee.
Who canact as trustee?
Usually, the individual drawing up the Trust will act as the trustee because you want full
control of the property. However, people do name trusted friends or relatives, attorneys or
a corporate trust department (bank or brokerage company) as trustee. A revocable living
trust should always name a second person or corporate trust department to act if the first
trustee dies, resigns or is otherwise unable to continue to manage the property. This
second person is called a “successor trustee“.
You can name two or more people to act together as trustees. They are called “co-trustees”.
Spouses may choose to establish a joint trust, in which case both spouses are donors and
trustees. Establishing a joint trust is more common among married persons in Wisconsin
2. and other community property type states where a significant portion of assets may be
owned as marital (or community) property.
What is the difference betweena fundedtrust and an unfunded trust?
Living trusts can be either funded or unfunded. A living trust is funded if the donor actually
transfers all or a portion of his or her assets into the trust during the donor’s lifetime. This
is done by changing the title document to the asset from the name of the donor to the name
of the trust. Alternatively, the donor may choose to leave the trust largely unfunded until
after the donor’s death. An unfunded trust is typically the receptacle of assets which “pour
over” into the trust under the donor’s will. An unfunded trust does not protect assets from
probate and its costs. To avoid probate, all of the donor’s assets which are not subject to a
beneficiary designation or automatically transferable on death should be transferred into
the trust during the donor’s lifetime.
Some people put all or most of their property into the trust at the beginning. Others put
some in at the beginning and add more from time to time (for example, when a certificate
of deposit matures). Others may wait and transfer much of their property only when they
die. To do this, you would use a simple will – called a pour over will. A pour over will funds
the trust with property that you did not put into the trust during your lifetime. When you
set up a revocable living trust, you are usually the first beneficiary. If you are married, you
may decide to make both you and your spouse the first beneficiaries. If not the first
beneficiary, you usually make your spouse the second beneficiary if you die first. In any
event, you will want to choose the people whom you want to get your property after you
die, so that the trustee will know what to do then.
Will a revocablelivingtrust avoid nursing home costs?
3. No. Since you can change the trust at any time and take the property back, the property in
the living trust is still yours, and will be included when your eligibility for Title 19 (Medical
Assistance) is calculated.
Will a revocablelivingtrust save any estate tax?
You do not save any estate tax just because the trust is a revocable living trust. However,
with the proper provisions in a living trust, a couple’s estate tax exemption may be
preserved and any asset carryover basis allocated. For deaths occurring in 2011 and 2012,
total assets may be up to $5,000,000 (or $10,000,000 for a couple) to avoid federal estate
Is the revocable living trust part of my taxable estate whenI die?
Yes. Because you can terminate the trust at any time, all of the property that is in the trust
at the time of your death will be included in your taxable estate.
Will a revocablelivingtrust save any incometaxes?
No. The state and federal tax authorities treat the income that the trust earns as your
income. Usually the trustee pays you all of the income and pays you any amount of
principal necessary to provide for your needs and requirements. If you become
incapacitated, the trustee pays necessary amounts of income and principal for your benefit.
Will a revocablelivingtrust create new tax returns?
No. In most cases, your assets continue to use your social security number and there are no
additional income tax filings during your lifetime.
Can I change the trust afterI set it up?
4. Yes, as long as you are mentally competent. You can change the trust or take the property
back at any time for any reason without having to get permission from anyone else. In
Wisconsin, a trust is revocable only if it says so in the trust agreement. The trust will be
irrevocable when you die and no further changes are allowed.
Doesn’t joint tenancy have the same benefits as a revocable living trust?
No. Joint tenancy may allow the surviving spouse to avoid probate. However, it often
creates unnecessary estate taxes at the death of the second spouse.
Can a revocable livingtrust provide foryoung childrenwhen I die?
Yes. You can make the same provisions for young children in a revocable living trust that
you can in a will.
Whatcana revocablelivingtrust do?
It can do the followingthings:
Provideforproperty management if you cannot manage your own affairs. If you have
property that needs active management and you become incapacitated or unable to do it,
there may have to be a guardianship or conservatorship if you do not have a trust. If you
have a trust, this expense and inconvenience can be avoided. If you have an unfunded trust,
you will need to have given someone a durable power of attorney that lets that person add
your property to your trust.
Providefinancial management of your property. Whether you begin by acting as your own
trustee or not, you may find at some point that you no longer wish to manage your
property. You can name a trustee or successor trustee who has proper training and
qualifications to take over the day-to-day issues of property management. Expect to pay
such a person a reasonable fee for this responsibility and effort.
5. Avoid probate. Property in a revocable living trust is not subject to the probate process. If
all of your property is in your living trust, there will be no need to probate your estate. This
also may provide some privacy since the probate records are open to the public. To the
extent that the trustee or beneficiary does not insist on court approval of accounts, the
revocable trust is not made part of the public record and remains confidential. However, if
you have not put substantially all of your property in your trust before you die, probate
usually will be required.
If you own land in another state, a special probate (ancillary probate) may be necessary in
that state in order to transfer that land to your heirs. By putting that land in a revocable
living trust, this ancillary probate may be avoided.
Shorten oreliminate delay in distributing yourproperty when you die.Because a revocable
living trust operates without court supervision, a trustee can usually act more quickly than
a personal representative of a probate estate to carry out the trust terms. The trustee
probably can distribute property to your beneficiaries that would be delayed in a probate
Providea complete inventory of yourassets. Since the trust causes you to organize your
assets, you will have a complete inventory of your estate.
Are there things a revocable living trust cannot do?
It cannot do the following things:
It cannot totally avoid many costs associated with probate. Even with a revocable living
trust, you may have to pay the trustee or someone else for preparing documents, tax
returns, transfers of property and other costs in running and distributing the trust. This
work is similar to what a probate personal representative does. These costs usually are
included in the fee charged by the personal representative.
It does not shorten the time in which a creditor can make a claim after your death. One
advantage of probate is that any claims of known creditors are cut off soon after your death
6. by order of the court. Instead of the regular statute of limitations, a creditor has to file their
claim within four months after the start of probate to be able to collect. This assures the
beneficiaries that they will get your property without having to worry about a creditor
being able to take some of it to pay your old bills. If there is no probate, the beneficiaries do
not get this protection.
Is a revocable living trust a completesubstitute fora durable power of attorney?
No. The two documents usually work best together. The trust provides more flexible
property management and distributes your property after you die. The power of attorney
can help with final funding of your trust, but it is better for dealing with special services,
Medicare and Medicaid, personal income taxes and daily living expenses.
To assist you, I have provided this information to you however it is not intended to be a
complete explanation of the laws, rules and regulations affecting it, and are constantly
changing, nor is this to be construed as legal advice as I am not an attorney.