What is a Revocable Living Trust?
A revocable living trust, also known as an intervivos trust, is a trust that you create during your lifetime. You still have complete control over all of the assets that you put into the revocable living trust.
The reason it's revocable is because you can change it at any time. If you want to amend it, if you want to revoke it, whatever you want to do, you can do as long as you do it correctly with the right legal documents.
That's kind of the definition that anybody will give you for a revocable trust. But what is a revocable trust and how can it help you?
Kicking the Bucket
The best way to think about it is to think about it as a bucket. You've all heard the saying, kicking the bucket when you pass away.
That is probably the easiest way to think about what a trust bucket is, what a revocable living trust bucket is and what it can do for you. If you don't have a revocable living trust, then your estate plan is probably, well, a stinky bucket.
Your estate is actually more than one bucket. You probably have three buckets. It's what most people have. And let's start with the easiest one.
Your non-probate bucket. Those are assets that are going to transfer to your heirs no matter what, whether there's a probate, whether there's a trust, it doesn't matter.
A non-probate asset could be like a life insurance policy that pays out to a specific beneficiary or a bank account that is held in joint tenancy or has a pay on death beneficiary.
The bank doesn't care if you have a probate or a trust, they're just going to pay out to whoever your beneficiary is. Retirement accounts are sometimes like that as well.
If you have a house, you might have it in joint tenancy with somebody else. When the first joint tenant dies, the other one automatically gets the property.
You can also have a transfer on death deed, which is kind of a new thing in property that we're seeing creep up in different states. These allow you to designate somebody as your beneficiary of your home when you pass away. It's kind of like a pay on death for a bank account, but instead it's a transfer on death for your property. That is your non-probate bucket.
A probate bucket is what most people probably have. This could also include your house, your car, your bank account, all your personal items in your house. Those are all items that need to be transferred to somebody on your passing.
When you die, everything in the probate bucket has to go through a probate court down at the courthouse with a probate judge. They have to actually transfer those assets from your personal name to the name of your beneficiaries. So that is your probate bucket.
You can see already that most of you probably already have two buckets, right? You have your non-probate assets and you have your probate assets that will have to go through the probate process.
Revocable Living Trust Bucket
If you notice, both of these buckets only kick in when you pass away. There is a third bucket that some people choose to have, and it's a smart way to plan your estate, and that is your trust bucket.
In this third bucket, you can still put most of all those same assets that were in the non-probate bucket and the probate bucket into your revocable living trust bucket. Why would you want to do that?
You might want to for ease of administration after you pass away. And that's the key. The probate and non-probate buckets only go into effect after you have died.
A revocable living trust, on the other hand, allows you to control those assets while you are still living and allows a successor trustee to also control those assets while you are still living. So why is that important?
In all my videos, you hear me talk about that I believe the most important thing about estate planning is incapacity planning. You need to have an incapacity plan in place right now if something were to happen to you today or in the near future.
That is what a revocable living trust will allow you to do because you put all of your assets into that bucket. You put your house into your trust. You change the deed on the house from your personal name, from Sally Smith to Sally Smith as trustee of the Sally Smith Revocable Living Trust. And now that house is in the trust bucket.
You do the same thing with your cars. You do the same thing with your bank accounts. Anything that has a title, a boat, a boat motor, all of those items, if it has a title, it has a registration, you title it and you register it in the name of your trust.
Why is it so important to have this trust bucket and have all of those assets in there? I've already said incapacity planning. If you were to become incapacitated, your successor trustee would simply step into your shoes. Right now you're the CEO of your own life, right?
You have control over all of those assets that are in your revocable living trust bucket. But if you were to become incapacitated and you've placed everything into that bucket, then your successor trustee simply steps into your shoes and makes certain that all of those assets are taken care of.
Maybe you have a rental house. If it's your personal house, are the bills going to get paid? Whatever you are doing, your successor trustee will simply be able to step into your shoes.
If you need healthcare, your successor trustee can work in conjunction with your healthcare power of attorney to make certain that your assets are used for your benefit. Not for anybody else's benefit, but for your benefit.
That's one of the keys of having a revocable living trust is that it provides very solid protection during incapacity. Because if you don't have a revocable living trust, you probably don't have all the other documents that come along with it, like a power of attorney, the living will, HIPAA authorization.
That means that your family is probably going to have to go down to the courthouse and get a guardianship to take control over your assets, to take control over your health, mind, body and soul, and get you the treatment that you need.
But if you've done proper estate planning with a revocable living trust, centered estate plan, you will have all of your assets in the revocable living trust bucket, and your trustee and the other fiduciaries that you have named for healthcare will be able to work together to make certain that you get the protection and the care that you need and that you want and that you've specified explicitly to them.
Another great benefit of having a revocable living trust centered estate plan is in that bucket, you can also put assets that are in another state. So, let's say that you lived where we live in Oklahoma and you had an asset in California, or you had a ski house in Colorado, or maybe when your child went down to Texas for college, you bought them a little condo to live in, or maybe you bought yourself a condo so you could go visit them.
In either case, you can put those assets into the name of your revocable living trust. The advantage of having it in your revocable living trust bucket is that if you were to become incapacitated, again, your successor trustee could take over those assets in Texas, California, Colorado, wherever they are, and seamlessly administer what needs to be done for that particular asset.
When you pass away, your successor trustee for death can also have complete control over those assets because they are titled in the name of your trust, giving them control over that asset. And if your trust says, "Sell everything," then they can easily sell that property as your trustee.
The key here is also the next benefit, and that is that it avoids probate. If you have all of your assets in your trust, in your revocable trust, your heirs will avoid probate when you pass away.
And that means, going back to the out-of-state property, that if you have property in Texas, Colorado, California, Florida, wherever it is, if you have property in those states, but it's titled in the name of your trust, then your successor trustee does not have to have a probate in Florida for that condo that you have, or in Texas for that land that you have, or in California for that vacation house you have.
Wherever that property is, as long as it's in the name of the trust, your successor trustee will have control over it, and they will not have to have multiple probates in different states. That's a huge advantage of having a revocable living trust.