A Revocable Living Trust (RLT) is a written legal document through which your assets, that determines how your assets will be handled after a person passes away. Assets can include real estate, valuable possessions, bank accounts, and investments.
Once it’s set up, you begin by placing your assets (investments, bank accounts, and real estate) into the trust. At this point you no longer own those assets- they belong to the trust.
You can amend or change the trust at any time. Income earned by the trust’s assets goes to you and is taxable, but the assets themselves do not transfer from the trust to your beneficiaries until your demise.
Some of the main benefits of a Revocable Living Trust are:
1. Avoids Probate
Probate administration is the process of proving to a court that the assets accumulated by you in your lifetime are genuine and that they belong to the rightful parties. Establishing a Revocable Living Trust will save you money at the time of your death as the distribution of assets in the trust will not go through probate, which is a court-ordered process for the settling of an estate.
2. Saves You Money
Court costs required for probating your will are taken from the estate. In having a certified trust attorney draft a living trust, there will be a nominal cost to have this setup, as a trust is a complex legal document. It also creates asset protection against any pending legal issues.
3. Provides Privacy
One big advantage of a trust is the level of privacy it provides. As a trust is not made public upon your death, your estate will be distributed in private.
Avoiding probate is the main advantage of establishing a living trust, but other benefits like privacy protection and flexibility make it a smart choice.
However, they have several limitations including the expense to have them written up, and they lack features of an irrevocable trust.
An Irrevocable Trust is a type of trust where its terms cannot be modified, amended, or terminated without the permission of the grantor’s named beneficiary or beneficiaries.
The main reasons for setting up an irrevocable trust are for estate and tax considerations. The benefit of this type of trust for estate assets is that it removes all incidents of ownership, effectively removing the trust’s assets from the grantor’s taxable estate.
Conventional lenders, such as banks and credit unions, are reluctant (or in most cases unable) to offer loans to irrevocable trusts in California. This reluctance is partly due to the complexity, lack of personal guarantee, as well as the hassle to set up this loan. As a result, we strongly discourage borrowers from exploring Irrevocable Trust plans.
If you have any further questions about trust or estate planning, we recommend proper legal counseling and we are happy to connect you with a qualified trust attorney who can assist you to navigate the various options available.
If you have any questions about how a trust impacts your mortgage refinance, please reach out to us at (760)930-0569 and one of our qualified loan originators will be happy to discuss.