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Raymond James Financial Services, Inc.Ralph Occhino, CFP Financial Advisor17220 Newhope St. #215Fountain Valley, CA james.comwww.ralphocchino.comRevocable Living TrustJanuary 27, 2022
Revocable Living TrustSummary:A revocable living trust can be a useful andpractical estate planning tool for certainindividuals, but not for everyone. This type oftrust is most commonly used to avoid probatebecause, unlike property that passes by will,trust assets are distributed directly to heirs.This type of trust is also used as a way tomaintain management of one's financial affairsduring a period of incapacity becausesomeone else can immediately take chargewhen needed. A revocable living trust doesnot minimize income, gift, or estate taxes, nordoes it shelter trust assets from creditors inmost cases.What is a revocable living trust?A revocable living trust (also known as an intervivos trust) is a separate legal entity created toown property, such as a home or investments.The trust is revocable, which means thatduring the grantor's lifetime (the grantor is theperson who originally owns the property andcreates the trust), he or she controls the trust.Whenever the grantor wishes, he or she canchange the trust terms, transfer property inand out of the trust, or end the trust altogether.The trust is called a living trust because it'smeant to function while the grantor is alive.The trust can continue after the grantor'sdeath, but the trust becomes irrevocable themoment the grantor dies.Revocable living trusts are used to accomplishvarious purposes: To ensure that property continues to beproperly managed in the event the grantorbecomes incapacitated To reduce costs and time delays byavoiding probate To lessen potential challenges to orelections against a will To maintain privacy To avoid ancillary administration ofout-of-state assetsHow does a living trust work?Establishing the trustTypically, an individual creates and funds thetrust, and names himself or herself as both thetrustee and sole beneficiary for his or herlifetime (if married, both spouses are typicallynamed beneficiaries). The grantor also namesa successor trustee or co-trustee, as well asthe beneficiaries who will receive any assetsthat remain in the trust at the grantor's death.Often, a spouse or child is named as thesuccessor or co-trustee and is also named asan ultimate beneficiary.Caution: In some states, a co-trustee isrequired.Living Trust: During Life IllustrationPage 2 of 5, see disclaimer on final page
The grantor continues to manage trust assetsduring his or her life. Any income earned orexpenses incurred by the trust flow through tothe grantor on the grantor's individual incometax return. A separate return for the trust is notnecessary.Although a revocable living trust can befunded with virtually any kind of property,including personal property, specialconsideration should be made beforetransferring certain types of property,including:In the event the grantor becomesincapacitated (e.g., from illness or injury), thesuccessor trustee or co-trustee canimmediately step in to take over themanagement of the trust on the grantor'sbehalf, avoiding the need for the grantor'sspouse or other family members to petition thecourt to appoint a guardian. Incentive stock options Section 1244 stock Professional corporationsTip: If special knowledge or skill is required tomanage property in the trust, the successor orco-trustee should be qualified.At the grantor's death, assets remaining in thetrust pass directly to the beneficiaries,bypassing the probate process. This can savetime and money, and can minimize some ofthe burden of settling the grantor's estate.Tip: Transfers to the trust are not consideredgifts, so the grantor doesn't need to file a gifttax return.Caution: Some states will reassess the valueof a home for property tax purposes when it istransferred to a trust. Some states will disallowincome tax deductions related to the home if itis owned by a trust.Caution: Some banks may impose a penaltywhen certificates of deposits (CDs) aretransferred to a trust because they considersuch transfers to be early withdrawals.Funding the trustTo ensure that the trust fulfills its objectives,the trust must be funded after it is created.Funding the trust means transferring legal titlefrom the grantor into the name of the trust.This may entail recording a new deed for realestate; re-titling cars and trucks; renamingchecking, savings, and investment portfolioaccounts; transferring life insurance policies,stocks, and bonds; executing new beneficiarydesignation forms; or executing assignments.Living Trust: At Death IllustrationPage 3 of 5, see disclaimer on final page
Suitable clientsA revocable living trust can be appropriate forindividuals: Owning real estate in more than one state(to avoid ancillary probate) With concerns about their health or futureability to manage their own financial affairs Who want to keep transfers at deathprivate (to avoid family conflicts, forexample) Who want someone else to manage andinvest assets (e.g., persons with specialneeds, persons who often travel overseas) Who want someone with specialknowledge or skill to manage and investassets (e.g., persons who inherit or winlarge sums of money) Who are single or who care for themselves Who are unmarried domestic partners Who are elderly or ill Who are not concerned about transfertaxesExampleHarry and Wilma just celebrated their goldenwedding anniversary. They have a 49-year-olddaughter, Cindy, who is a professor at thecommunity college, and a 47-year-old son,Carl, who is an engineer. Harry's health isbeginning to fail, and lately, he's had a littletrouble remembering things. Harry has alwaystaken care of the family finances, and he'sworried that Wilma might not be able tomanage them on her own if something shouldhappen to him. Harry and Wilma own thefollowing assets jointly:Home 600,000Checking and savings 2,000accountsCertificates of deposit 20,000(CDs)Bonds7,000Mutual funds5,500Life insurance 1 millionTotal 1,634,500Harry and Wilma aren't worried about federaltransfer taxes because their estates ( 817,250each) will be sheltered by their exclusions( 12,060,000 per individual in 2022, 11,700,000 per individual in 2021).So, Harry and Wilma transfer all of thecouple's assets to a revocable living trust.Harry is named as trustee and his daughter,Cindy, is named as successor trustee. Thetrust also names Carl as successor trustee ifCindy cannot serve for some reason. The solebeneficiaries of the trust during their lives willbe Harry and Wilma, and, upon the death ofthe last spouse to die, any assets remaining inthe trust will pass to Cindy and Carl equally.Now, Harry can still manage the couple'sproperty himself, but knows that if he shouldbecome incapacitated or die before Wilma,Cindy (and if not Cindy, Carl) will immediatelytake charge, paying the bills and providingWilma with income until she dies. Harry alsoknows that when Wilma dies, Cindy and Carlwill receive their inheritances without the delayand costs of probate.AdvantagesAvoids guardianshipTypically, the grantor names himself or herselfas the trustee, and someone the grantor trustsor a professional trustee is named asco-trustee or successor trustee. So, if thegrantor should become unable to manage thetrust assets for whatever reason, theco-trustee or successor trustee canimmediately take over control and continuemanaging the assets with little or no lapse inbetween. This can be very important withcertain types of assets that require frequentattention to maintain their value, such asrental property or a securities portfolio.Avoids probateThe grantor and the grantor's spouse aretypically named as the sole beneficiaries ofthe trust during their lives, and at their deaths,any assets remaining in the trust pass to thegrantor's named beneficiaries, usually childrenand grandchildren. If the grantor can and doestransfer all of his or her assets in this way,having a will becomes unnecessary. Sinceassets passing by trust are not subject toprobate as assets that pass by will are,distributions to beneficiaries can be mademore quickly (and they are often neededquickly). Further, bypassing probate will savethe grantor's estate any costs that would haveotherwise been incurred, such as filing feesand attorney's fees. And, finally, the grantor'sfamily will be spared any burden that would beassociated with the probate process, such aspetitioning the court and organizingdocuments for filing.Caution: Bypassing probate may not be anappropriate goal for some individuals. Forexample, smaller estates may qualify for anexpedited probate process or be exempt fromprobate altogether. In some cases, the costsassociated with a living trust may be greaterthan the costs associated with probate. And,under certain circumstances, the court'soversight of the estate settlement during thePage 4 of 5, see disclaimer on final page
probate process may be welcome (forexample, when family conflict is involved).DisadvantagesDoes not save taxesThough a living trust is a separate legal entity,it is not a separate taxpayer during thegrantor's lifetime. The grantor is consideredthe owner of the trust assets for tax purposes.All income and expenses generated by trustproperty flow through to the grantor and mustbe reported on the grantor's personal incometax return. However, upon the grantor's death,the trust becomes a separate taxpayer anddifferent income tax rules apply. Further,assets in the trust will be included in thegrantor's gross estate, generally at their dateof death value, for estate tax purposes.Therefore, a revocable living trust cannot beused as a way to minimize taxes.Does not shelter assets from creditorsGenerally, assets in a revocable trust aredeemed to be owned by the grantor and aretherefore reachable by creditors (although, insome states, the assets may not be reachableby Medicaid recovery after the look-backperiod expires).This information, developed by an independent third party, has been obtained from sourcesconsidered to be reliable, but Raymond James Financial Services, Inc. does not guarantee thatthe foregoing material is accurate or complete. This information is not a complete summary orstatement of all available data necessary for making an investment decision and does notconstitute a recommendation. The information contained in this report does not purport to be acomplete description of the securities, markets, or developments referred to in this material. Thisinformation is not intended as a solicitation or an offer to buy or sell any security referred toherein. Investments mentioned may not be suitable for all investors. The material is general innature. Past performance may not be indicative of future results. Raymond James FinancialServices, Inc. does not provide advice on tax, legal or mortgage issues. These matters should bediscussed with the appropriate professional.Page 5 of 5Prepared by Broadridge Investor Communication Solutions, Inc. Copyright 2022
and out of the trust, or end the trust altogether. The trust is called a living trust because it's meant to function while the grantor is alive. The trust can continue after the grantor's death, but the trust becomes irrevocable the moment the grantor dies. Living Trust: During Life Illustration Revocable living trusts are used to accomplish .
