What is a Revocable Living Trust?
A revocable living trust (RLT) is an agreement between its maker (Sometimes called the grantor or settler) and a trustee. Under that agreement, the maker transfers assets to the trustee and gives instructions to the trustee concerning the management of the assets while held in the trust. The instructions specify how the assets are to be held and used during the maker’s lifetime, as well as how the assets are to be distributed following the maker’s death.
A person can be both the maker and the trustee of the RLT. The term “revocable” refers to the fact that the maker has the power to change or do away with the trust. The maker also may have the power to add or remove assets from the trust and control and direct all payments from the trust. If the maker is also the trustee, he or she can make all the decisions concerning the assets in the trust. The trust agreement can provide that any assets held in a RLT will avoid probate at the maker’s death. RLTs can also provide a way to manage your assets during periods of disability.
Will a Revocable Living Trust help me avoid taxes?
RLTs are tax neutral. Both wills and trusts can help avoid estate taxes, but must include specific provisions to do so. If you require tax planning, you should make sure that an experienced estate planning attorney handles your planning, whether you choose to do so by will or RLT.
What is an “abusive trust arrangement?
“Pay no income tax!” “Pass your property to your children free of federal estate tax!” These are examples of claims made by promoters of abusive trust arrangements, who usually promise tax benefits with no meaningful change in the taxpayer’s control or use of his or her income or assets. Abusive trust arrangements are trust arrangements that claim to reduce or eliminate federal taxes in ways that are not permitted by federal tax law.
How will I know if a trust is an abusive trust?
Abusive trust arrangements may be marketed under the following names: Pure Trust, Constitutional Trust, Contractual Trust, Patriot trust, Freedom Trust, Unincorporated Business Trust, Complex Trust, and by other names referring to constitutional issues, fairness, equity or patriotic themes. The promoters of abusive trusts may claim, “The wealthy have been doing this for years” or “Your attorney wouldn’t understand it.”
What can I do to protect myself?
Remember, if it sounds too good to be true, it probably is. Ask an attorney to review the materials provided by the promoter. Promoters often charge hefty fees, larger than an attorney.
What is the estate tax?
The estate tax is a tax on the right to pass property to others at your death. Both the federal and the state departments of revenue asses an estate tax when a person dies if the estate is sufficiently large.
What is affected by the estate tax?
Fortunately most people are not affected by the estate tax. For a person who dies in 2012, that person could pass several millions in assets free of estate tax to his or her heirs or other beneficiaries. It is important to note that the law may change at any time, and Congress could raise or lower the tax-free limit for future years. A lawyer or Certified Public Accountant can assist you with estate tax matters.