The Power of Revocable Living Trusts in Estate Planning
For many people, the idea of estate planning can seem overwhelming, which often leads to procrastination. However, a properly executed estate plan is one of the most significant gifts you can give to your loved ones, ensuring your wishes are honored. One of the most flexible and powerful tools in a Michigan estate plan is the Revocable Living Trust. In this post, the Estate Planning Attorneys of Thompson Legal will explore what a revocable living trust is, how it works, and for whom it may be an ideal choice.
Please note that this post is not exhaustive, and every situation is unique. In the event that you have legal questions about working with a revocable living trust, it's advisable to speak with a licensed attorney. Contact Thompson Legal to speak with a Michigan attorney today.
What Is a Revocable Living Trust?
A revocable living trust is a legal document created by an individual (the grantor or settlor) to hold and manage their assets during their lifetime and to distribute those assets upon their death. The trust is revocable, meaning the grantor can change or terminate it at any time, as long as they are mentally competent. It is also a living trust, as it is created while the grantor is alive. Every trust has three key parties:
Grantor (Settlor): The person who creates the trust and transfers assets into it.
Trustee: The person or entity who manages the assets within the trust. Often, the grantor serves as the trustee initially. However, once the grantor passes away, or is still alive but deemed to lack capacity, the named successor trustee may take over.
Beneficiary: The person or people who will eventually receive the assets from the trust. The grantor is usually the initial beneficiary.
A revocable living trust is a separate legal entity created to hold and manage your assets during your lifetime and after your pass away. According to MCL 700.7802 of the Michigan Trust Code, a trustee "shall administer the trust solely in the interests of the trust beneficiaries." Unlike a will, which becomes effective only upon your death and typically results in the immediate distribution of assets, a trust provides a more comprehensive and controlled plan. By transferring your assets into the trust, you can ensure they are managed for your benefit while you're alive and, after you're gone, for the benefit of your chosen beneficiaries. This structure allows for a higher degree of oversight and protection, as the trust can continue to manage and disburse assets over a longer period, rather than a single, immediate payout.
How To Create a Revocable Living Trust
Creating a revocable living trust is a process that requires careful thought and professional guidance. The first step is to sit down and thoughtfully consider your goals. What assets do you have, and how do you want them managed during your life and distributed after you're gone? Next, you should consult with a qualified estate planning attorney to discuss your wishes and ensure a trust is the right tool for your specific situation.
Once you've made that decision, the attorney will work with you to draft and finalize the legal documents. This includes identifying your assets, naming a trustee to manage them, and designating your beneficiaries. The final and most critical step is to "fund" the trust, which means re-titling your assets into the name of the trust. This crucial action gives the trust legal control over your property and is what ultimately allows you to avoid probate. Lastly, remember to review your trust periodically—every few years or after significant life events—to ensure it remains current and accurately reflects your wishes.
How Does a Revocable Living Trust Work?
After meeting with an attorney to discuss and draft the revocable living trust document and properly funding it by retitling assets into the trust's name, you or a designated individual serves as the trustee. In this role, you have full control to manage and use the assets for your own benefit as long as you are alive. This private management is a key advantage, as trusts are not required to be registered with the probate court. When you pass away, a successor trustee—an individual or entity you named in the document—takes over and distributes the assets to your beneficiaries according to your instructions. Since this process is handled privately outside of the court system, the details of your assets and who your beneficiaries are remain confidential, unlike with a will, which becomes a public record during the probate process.
Who is a Revocable Living Trust Best For?
While a revocable living trust is the most common estate planning tool of the modern day, there are no "one-size-fits-all" solutions in estate planning. Every person and situation is different. However, a revocable living trust can be particularly well-suited for individuals who:
Own real estate: Especially if they own multiple pieces property in multiple states, a trust can help simplify ownership and avoid multiple probate proceedings.
Have minor children: Having a trust ensures that trust assets can be held and managed for the benefit of your children, as well as disbursed at certain named events or ages.
Special beneficiaries: If your beneficiaries are on government benefits or may be subject to creditor claims in the future, a trust may be a way for you to protect those assets in the future.
Want to maintain privacy: The details of a trust remain confidential, unlike a will, which becomes a public record in probate court.
Desire to avoid probate: Probate can be a lengthy, expensive, and stressful process for loved ones. A trust bypasses this entirely.
Wish to plan for incapacity: The trust can include provisions for a successor trustee to manage assets if the grantor becomes incapacitated.
Have complex assets: A trust is excellent for managing a variety of assets, including business interests, investments, and personal property.
Common Trust Mistakes
The single biggest mistake people make with a revocable living trust is failing to properly fund it. A trust document is just a piece of paper until assets are transferred into it. If assets are not re-titled into the name of the trust, either directly or via beneficiary designation upon your passing, they will still be part of your probate estate upon their death. This simple oversight negates the primary benefits of the trust, leading to the expensive and public probate processed your intended to avoid.
Another frequent error is the incorrect choice of trustee or a failure to fully comprehend the trust's terms. The trustee is the individual or entity responsible for managing the trust's assets and distributing them according to your wishes. If you name someone who lacks the financial acumen, is prone to conflict, or is simply unwilling to serve, your trust's purpose can be undermined. Furthermore, many people sign their trust documents without carefully reading or understanding them. A failure to grasp the specific clauses and provisions can lead to unintended consequences, such as assets being distributed differently than you intended or the trust becoming too rigid to adapt to future life changes.
Finally, beware of form "one-size-fits-all" living trusts, which are often marketed by non-professionals. These standardized documents may not adequately address your specific circumstances, family dynamics, and financial situation. An effective trust is a customized legal tool, not a pre-printed form. Engaging with a qualified estate planning attorney ensures your trust is specifically tailored to your needs, protecting your assets and carrying out your precise wishes.
Take Control of Your Legacy
A revocable living trust is a powerful estate planning tool that offers flexibility, privacy, and the ability to avoid probate for your loved ones. While the process requires careful attention, the benefits can provide significant peace of mind. By working with an experienced attorney, you can ensure your trust is properly drafted and, most importantly, fully funded. If you’re ready to take the next step in securing your legacy, learn more about the Estate Planning Services at Thompson Legal. To get started, please visit our Contact Us page to schedule a consultation.
This article is for informational purposes only. It is not intended as legal advice. In the event you would like to speak with a Revocable Living Trust Attorney, please Contact Thompson Legal at (734) 743-1646 to schedule a consultation.
