Revocable Living Trusts in Michigan: Everything You Need to Know
This article regarding revocable living trusts by Michigan lawyer Nicole Wipp and the Family & Aging Law Center PLLC is not, and should not be construed as, legal advice. It is for general informational purposes only. To better understand how a revocable trust can benefit you in your estate planning,
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How Does a Revocable Trust Work?
A trust is a contract, a legal document, between the Grantor (the person who creates the trust), the Trustee (one who controls the trust) and the beneficiaries (those entitled to benefit from the trust). A living trust is a legal entity that avoids a court-supervised process in most cases and ensures the grantor's wishes are carried out at the grantor's death without making personal financial affairs a part of the public record.
In many cases, the grantor and the trustee are the same person. For example, if you are creating the legal document (ideally, with your attorney!), you are the grantor. This gives you the right to determine how the trustee (you) will operate the trust written document and decide who benefits (beneficiaries), how, and when. You also decide who gets to make the decisions when you are no longer able to - this is your successor trustee.
You can create a trust that permits you to be Trustee (maintain control) and give you the right to receive full benefits (having full access to all the property inside).
Using a revocable living trust as part of your estate is also the easiest way to make sure that your assets, including personal property, bank accounts, go to family members or others based on your discretion of who should receive the trust's assets.
The successor trustee is the person named to ensure that the living trust assets are transferred to beneficiaries upon your death.
A commonly held misconception is that people believe they "don't have enough money" or that their estate "isn't big enough" to have a trust. This couldn't be further from the truth. Even a person that only owns a home, a car, and a bank account can benefit from having a simple living trust document.
Bottom line: for most, revocable trust documents are an essential legal arrangement in any estate plan.
Benefits of a Revocable Living Trust in Michigan
A revocable living trust permits you to retain control and access to all assets held by the trust during your life. It makes it easy to transfer assets to beneficiaries when the grantor dies - and, when properly funded, the successor takes over to transfer ownership of the assets in the living trust according to the trust maker's final wishes. This type of trust is often used as a substitute for a Will, because it creates the easiest path for your loved ones to avoid the time-consuming probate process.
We often refer to a revocable trust as "your rulebook" because revocable trusts allow you to set the rules for your assets and money during your life, during disability, and after death...instead of giving that power to the government or others.
Other advantages of revocable living trusts, when properly drafted in your estate plan, can include:
- protect assets for your spouse after your death
- special needs planning for disabled beneficiaries
- asset management and protection for adult or minor children who are not proficient with handling money to control spending habits
- protection of assets from a spouse’s subsequent marriage after your death
- disability planning in case you become disabled before death
- asset protection for your children if in bad marriages or to ensure your assets don’t go to the in-laws.
- keeping your affairs private (as opposed to open for public review in probate).
- no court intervention is required (handled entirely by a Trustee you name in accordance with your detailed instructions)
- avoiding estate taxes
- and planning for proper management of your business in your absence.
For more information, listen as attorney Nicole Wipp explains how Revocable Living Trusts work - click here.
Very few trusts provide ALL of these benefits. Only a qualified estate planning attorney will know how to incorporate these protections into your plan.
When You Want to Avoid Probate Or When When You Want Privacy
A well-established advantage of revocable living trusts is the avoidance of probate. Even simple probate will result in extra court costs, the opportunity to create a court dispute, and putting control over the assets in the hands of the government.
Contrary to what you may believe, wills do not avoid probate court. In fact, for people wishing to bypass probate, the advantages of using a trust usually far outweigh other types of planning, such as beneficiary designations.
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What Are Some Disadvantages of Having A Revocable Living Trust?
It is also essential to know that, while revocable trusts have many advantages, they do not protect your assets from a nursing home, lawsuits, divorce, bankruptcy, or other creditors - but there are ways to do that, including using an irrevocable living trust or a hybrid version of a revocable and irrevocable living trust as part of your estate.
Additionally, certain assets such as 401k's, IRA's and other tax-advantaged accounts often are not legally allowed to be held by a living trust while the trust maker is alive.
The good news is that, with the right estate planning, a living trust can become a "qualified designated beneficiary" for IRS tax purposes after death. Many assets like this can go safely to beneficiaries after the trust maker dies.
What is the main difference between a revocable trust and an irrevocable trust?
This is both a simple and a complex question. First, both can be a living trust - meaning that they can be in existence when a grantor is alive. This is contrasted with trusts that only come into existence after a grantor dies. They both can also bypass probate and transfer all your assets to beneficiaries at any specified time.
Where the difference mainly occurs is in the flexibility of the trust and the intent. A revocable trust is a document with great flexibility. Any part of it, or all of it, can be revoked at any time. The main purpose is asset management during life, flexibility over assets when circumstances change, and keeping an estate private after death (outside of probate).
Irrevocable trusts serve many purposes, but mostly they are used for asset protection of an estate for a variety of reasons. In an elder law firm such as ours, a hybrid version of this kind of living trust can be used specifically to avoid nursing home poverty and to keep the loss of assets to long-term care costs to a minimum.
However, an irrevocable living trust is also used in complex estates where there is the potential for high estate tax or federal estate tax concerns that cannot be overcome through other means and would put family assets at risk. To be clear, however, for most people, this is not a concern, as the assets needed for this type of planning far exceed what 98% of Americans actually have.