Revocable Living Trusts in Kentucky

Your estate plan will either be will-based or trust-based.

If you have a trust-based estate plan, you will still use a will, which will address any of your assets that are not held in the trust and thus need to go through the probate process.

This type of will is known as a pour-over will.

What is a Trust?

Let’s take a step back and talk about trusts in general.

A trust is a legal relationship whereby a grantor entrusts property to a trustee, who manages that property for the benefit of a beneficiary, according to the terms of the trust document.

So, we have three people. And, it’s essential to understand that one person can fulfill multiple roles.

That definition is sufficient for purposes here.

But, you should know that the law of trusts is complex and goes well beyond the basic revocable living trust used in basic estate planning.

The Kentucky Revocable Living Trust

The revocable living trust is one of many types of trusts and is used in trust-based estate plans.

You (or you and your spouse jointly) are the grantors of the living trust, as it is your property that will be transferred to the trust.

The beneficiaries will be people of your choice.

With the revocable living trust, you have control of the how and the when questions of asset distribution.

The Initial Trustee

Like all trusts, a revocable living trust requires a trustee. If you are not married, then this would be you. Married couples may serve as joint trustees of a single trust, or form separate trusts, depending on specific circumstances.

You (along with your spouse, if applicable) remain in control of trust assets during your lifetime. That is, the trust remains revocable.

However, at death, the trust loses its revocable status, and a successor trustee is charged with managing or disposing of assets according to terms you choose and for the benefit of the beneficiaries you have chosen.

Unless a corporate successor trustee is used, multiple successor trustees should be named.

Choosing a Successor Trustee

Ideally, the successor trustee should have some financial wherewithal.

Additionally, the ability to make good decisions even in the face of potential pressure from beneficiaries is important.

Perhaps consider what they are risking if they act poorly, e.g., a DWI lawyer would be risking their legal license.

You will want to ask who you are considering beforehand to ensure they will accept the responsibility and understand what it entails.

Should You Have a Will or a Living Trust?

The revocable living trust is a probate avoidance tool.

Other potential benefits provided by a revocable living trust include updating plans with less difficulty, blended family planning, preempting will contests, and augmenting what is typically done through a power of attorney.

It is important to note that a revocable living trust is not for asset protection or tax planning.

Probate Avoidance

Much is written about using a revocable living trust to avoid probate.

Yes – avoiding probate can save money, enhance privacy, and facilitate easier finalization of a deceased person’s affairs. But, it’s not the only reason. Further, a will-based estate plan (one that does not use a trust as all) can be perfectly fine for many people.

Cost

Some attorneys see wills as a loss leader, knowing they will likely handle the later (much more expensive) probate.

A will is initially cheaper. However, avoiding probate is likely a long-term savings.

Ancillary Probate

One benefit to the living trust is avoiding ancillary probate.

An ancillary probate is a process that happens in a second state. So, if you own real estate in a different state than your home state, the case for a revocable living trust is more compelling. Alternatively, an LLC-based succession plan may be preferable.

Will Contests

A will encourages will contests. Basically, if someone does not receive what they otherwise would under the laws of intestacy, then they will be incentivized to contest a will.

Reasons to contest include improper execution, duress, and insufficient mental capacity.

If you imagine that your beneficiaries (or you have cut someone out who would have received under the intestate laws) may be contentious, a revocable living trust should be considered.

Funding Your Revocable Living Trust

Properly funding (transferring assets to) your revocable living trust (or any other trust) is essential. Otherwise, the benefits to trust use are lost.

How to fund is specific to the asset in question. Begin by making an inventory of which assets should be held by the trust. Pay attention to an asset’s location as out-of-state assets may lead to adverse state tax consequences.

And, be mindful of real property, as even relatively sophisticated non-lawyers are not unlikely to error.