Many of my videos focus on estate tax planning, asset protection planning, particularly using trusts, and leveraging the best trust laws available, often in South Dakota. However, today’s video is aimed at a topic more broadly applicable: revocable living trusts—specifically, what assets should go inside one. A revocable living trust, once considered primarily for the affluent, is now accessible to virtually anyone. So, what is a revocable living trust, and why should you consider one? A revocable living trust is, as the name suggests, revocable, offering flexibility. It is tax-neutral, meaning there’s no change in your income tax situation, and your interaction with your assets remains largely unchanged. As the trustee, you manage the assets, and as the beneficiary, you benefit from them, maintaining the same relationship as if the assets were in your name.
The primary reason to place assets in a revocable living trust is to streamline administration and avoid probate. Probate, the legal process of transferring ownership of assets upon death, can be lengthy and burdensome. By transferring assets to a trust, you bypass this process entirely. Each state has different probate thresholds, and exceeding these limits—often through tangible personal property like cars, furniture, and collectibles—can necessitate probate. Assigning such items to a trust via a simple document, typically prepared by your attorney, ensures they are included.
Real estate is another key asset for a trust. This could include personal residences, vacation homes, or property in multiple jurisdictions. Placing real estate in the trust prevents entanglement in probate processes across different states or countries. Cash accounts, including savings and checking, as well as brokerage and investment accounts, should also be titled under the trust. While some people use transfer-on-death or payable-on-death designations to avoid probate, consolidating everything under the trust simplifies management and enhances privacy.
One challenge of establishing a trust is the time and effort required for implementation, such as contacting financial institutions and retitling assets. However, the long-term benefits—avoiding probate, maintaining privacy, and simplifying asset management—outweigh the initial effort. Although setting up a trust can be more expensive than a simple will, it provides significant value. Probate is a public process, exposing details about family members, asset values, and distributions. Trusts, on the other hand, keep these matters private.
Some attorneys discourage trusts, citing wealth thresholds or steering clients toward wills to profit from probate work. It’s important to recognize these potential biases and make decisions that align with your priorities. Ultimately, a revocable living trust is a powerful tool to streamline estate planning, avoid probate, and protect your privacy. It’s a flexible and effective way to manage virtually any type of asset.