P—Revocable Living Trust

The revocable living trust (RLT) is awill substitutethat can accomplish many estate planning objectives. It is an agreement that is established during lifetime and it may be amended or revoked at any time prior to the grantor’s disability or death. The primary advantages of the RLT allow a grantor to: (1) provide for the management of assets upon his mental or physical disability and avoid conservatorship proceeding; (2) reduce costs and time delays by avoiding probate; (3) lessen the chances of a successful challenge or election against a will; (4) maintain confidentiality by not having to file a public will; and (5) avoid ancillary administration of out-of-state assets.

Two additional documents are typically executed together with the RLT:

• Thedurable power of attorneyauthorizes the power-holder to act for the grantor when the grantor is disabled.
• Thepour-over willfunctions asa “fail safe” device to transfer at death any remaining assets into the RLT, to undergo minimal probate as a means of clearing the estate of creditor claims, and to appoint guardians of any minor children.

DURING LIFETIME. The grantor establishes the RLT and typically names himself as the sole trustee. This is accompanied by a retitling and transfer of property to the trust. Because the grantor maintains full control over trust assets there are no income, gift, or estate tax consequences.

UPON DISABILITY. If the grantor becomes disabled due to legal incompetency or physical incapacity, a designated successor trustee steps in to manage the grantor's financial affairs. Disability is determined under trust provisions providing a standard of incapacity (e.g., certification by two physicians that the grantor is unable to manage his financial affairs). Also, during the grantor's disability, the holder of the durable power of attorney is authorized to transfer additional grantor-owned assets to the trust.

UPON DEATH. The RLT becomes irrevocable when the grantor dies. Under the grantor’s pour-over will, any probate assets not previously placed in the RLT during lifetime are transferred to the RLT as part of the grantor’s residuary estate. Assets held in trust are then disposed of according to the terms of the trust. This can include an outright distribution to the trust beneficiaries, or the trust may contain provisions establishing separate tax-savings subtrusts similar to the marital and family trusts under the exemption trust will.

Although the RLT is not a panacea, it clearly offers substantial benefits for many individuals. The utility of a funded revocable trust increases with the grantor’s age, when there is an increased likelihood of incompetency or incapacity and the need for asset management.