Revocable living trusts (RLT) are the bread and butter of most estate planners. If drafted correctly, RLTs can avoid the costly and time-consuming probate process and provide for a client’s spouse without disinheriting children—which can be important for clients who are in second marriages. RLTs can reduce estate taxes and protect inheritances from courts, creditors, spouses, divorce proceedings, and irresponsible spending.
There is a lot to learn about drafting RLTs for attorneys who are new to estate planning: Individual statutes can add state-specific nuances, best practices can evolve, and every client has his or her own goals and associated challenges. At our last RLT Drafting Intensive, attorneys asked a variety of questions; many of those are presented below:
1. Is an RLT valid in all fifty states?Yes, an RLT is valid in all fifty states.
2. What is the proper way to name an RLT?
The trust name is very specific to the client's wishes, but this format is frequently used: Peter and Paula Miller Revocable Living Trust dated 1/2/2021.
3. How do you use a trust to protect assets from the claims of unknown creditors?It is important to discuss whether the client expects to have creditor issues. If so, then a probate proceeding may be appropriate for the client's situation. Consider putting only a portion of the assets in the trust and keeping a few assets outside of the trust so that a probate proceeding can be started. It is not uncommon to have both an estate administration and trust administration at a client's death.
4. If an RLT is originally drafted in one state and a restatement is drafted in a new state, is the new state the state of trust administration?Yes, if the restatement changes the state of trust administration specified in the trust.
5. How do you fund an RLT with tangible personal property (TPP)?An RLT is funded through an assignment of TPP, which is an ancillary document.
6. Is a memorandum for TPP recommended even if a client does not have specific property that they want to gift at the time of drafting?Assuming that your state law allows for a memorandum for TPP or similar document, it is always helpful to provide it and explain that it is a way for the client to make gifts of tangible property (not cash), and that the client can update the list without having to meet with you to update the client’s estate plan.
7. Is it a good practice to staple the original trust closed and include it in the binder?In the case of trust litigation, keeping multiple trust restatements can show the grantor's intent. However, this is a double-edged sword: if the latest restatement is significantly different from previous restatements, it could aid a beneficiary who is asserting the validity of the latest restatement. It is a case-by-case call.
WealthCounsel can help you create sophisticated revocable living trusts, including individual, joint, and pour-over revocable trusts with Wealth Docx—the premier estate planning drafting software. Our Living Trust System includes:
- Funding instructions
- Comprehensive interview questionnaire
- Estate tax and generation-skipping transfer tax planning utilizing disclaimers, Clayton election, and formula funding
- Continuing and testamentary trusts for beneficiaries
- Comprehensive charitable planning, including testamentary charitable trust and private foundation
- Trust protector provisions
- Conduit trust provisions for retirement accounts
- Ancillary documents, including pour-over will, power of attorney, and property agreement
