If you have circumstances where you’d like to guide the use of your assets for the foreseeable future after your death, then you should consider creating a revocable trust. Unlike an irrevocable trust, you can revoke or amend a revocable trust at any time without seeking anyone’s permission to do so. In addition, a revocable trust allows you to retain control of all assets in the trust while you are alive. In this article, we examine revocable trusts in Kentucky.
What is a Revocable Trust?
A revocable trust is a legal document created to manage a person’s assets during his or her lifetime and to distribute them after death. The individual who creates a trust is known as the grantor, and the individual responsible for managing trust assets is called the trustee.
Revocable Trust Benefits
Revocable trusts provide many benefits, including:
- Probate avoidance: A revocable trust enables a person to pass along assets to heirs without going through probate, which can be an expensive and time-consuming process if heirs have disagreements.
- Ancillary probate avoidance: If a person has out-of-state property, placing it into a revocable trust can help to avoid certain probate issues like having to conduct probate proceedings in multiple states.
- Incapacitation protection: If a trust’s grantor becomes incapacitated, a revocable trust permits a successor trustee to assume his or her duties (if the grantor was also acting as trustee). This can help avoid financially and emotionally taxing adult guardianship proceedings.
Revocable Trusts and Taxation
An additional benefit of creating a revocable trust involves taxation. During the lifetime of the grantor, trust income is taxable. During this period, the grantor retains control over the trust’s assets and terms. A revocable trust’s taxpayer identification number is typically the same as the grantor’s Social Security number during his lifetime. So, the trust itself is not required to file a tax return, and all credits, income, and deductions are reported on the grantor’s personal income tax return. In other words, when a grantor creates a revocable trust, it remains technically invisible to state taxing authorities and the IRS, thereby avoiding double taxation.
Avoiding Additional Costs
Although a revocable trust can help a grantor avoid double taxation associated with an irrevocable trust, extra expenses can arise if the grantor fails to transfer all assets subject to probate into the trust. If a grantor fails to do this, then all property outside the trust is subject to probate when the grantor dies. The result of this is that the grantor’s estate ends up in probate court, thereby resulting in two payments: the first being the costs of establishing the revocable trust, and the second being the cost to have non-trust assets probated after the grantor’s death. While there are sometimes good reasons to not place all property in your revocable living trust, simply neglecting to take care of the funding isn’t one of them. By planning accordingly and seeking the guidance of an experienced estate planning lawyer, you can make sure the assets you wish to be controlled by the terms of your trust are properly transferred to the trust.
Contact a Shelby County Estate Planning Attorney
If you need assistance with estate planning in the state of Kentucky, Berkley Oliver PLLC is here to help. Our Kentucky estate planning lawyers have the knowledge and experience necessary to create an estate plan that will protect you and your loved ones for years to come. Please contact us as soon as possible to arrange a free consultation with a Kentucky estate planning lawyer.