What to Know About Creating a Revocable Living Trust in Kentucky

Posted by John Crow | Jan 07, 2020 | 0 Comments

What is a Revocable Living Trust?

If you're any kind of movie watcher, you probably remember many scenes where the attorney reads aloud a person's last will and testament. Movies present will readings as a public affair with a captivated, often enraged, audience. But have you seen a movie that publicizes aspects of a revocable trust? I would guess the answer is no.

Despite dramatic inaccuracies drawn from films, most people generally understand what a will is and how a will works. In fact, when it comes to preparing for one's death, the first thing most people think of is writing a will. Indeed, wills are a fundamental part of estate planning. When a person dies testate (meaning with a will), the executor of the will settles the accounts and the beneficiaries receive their inheritance. This process generally goes smoothly as long as the deceased's assets are minimal and straightforward. However, this is not always the case.

As a person's assets start to accumulate, the complexity of their overall estate increases. Increasing assets require more detailed planning, and many times basic wills are not sufficient for the job. A more appropriate option for complex estates is a revocable trust.  

In short, a revocable trust, also called a living trust or a revocable living trust, is an entity that holds a person's property. A trust represents a fiduciary relationship between a trustee and a beneficiary. The trustee manages the assets inside the trust and the beneficiary enjoys the benefit of the assets.

For example, if a trust is funded with real estate, the trustee may have the duty to maintain the property, make repairs, and pay taxes and insurance. But the beneficiary gets to enjoy the property – i.e. to live inside the home. The trust technically owns the property, but the beneficiary is allowed to stay there.

Who Should Create a Revocable Living Trust?

Anyone seeking limit the costs of probate and keep their financial situation secret from the public should consider a revocable living trust to be their most suitable option.

Sometimes legalities are best explained through examples, so let's consider the following hypothetical situation: Let's call the client Bob. Bob and his wife have one unmarried daughter who is the sole heir of her parents' assets. Bob and his wife own one home in Hopkinsville, Kentucky where they live full time. They do not own investment accounts outside of their 401(k) and IRAs. Because Bob had few assets and a small family, Bob originally had a will as the most appropriate and budget-friendly option.

Fast forward ten years, and Bob's financial situation has changed dramatically. Bob's previously unmarried daughter is now married with three children. Bob became a business partner with his new son-in-law and now owns multiple agricultural properties in Kentucky as well as a vacation home in Florida. What used to be a simple estate has grown into a complex compilation of investment accounts, business accounts, out-of-state properties, and multiple potential heirs. Based on the new complexity of Bob's assets, a revocable trust is a better option for Bob and his family.

Assuming the revocable trust is properly funded and structed, Bob will be able to avoid probate, streamline the management and distribution of his assets at his death, and provide a privacy shield for his family's financial situation.

Whether your situation is similar to Bob's, or if you simply are interested in further protecting what you value, an estate planning attorney can help you determine if a trust is the right option for you. Before you meet with your attorney consider the following questions:

  • How important is it to avoid probate?
  • How important is financial privacy?
  • How important is streamlining your estate once you pass away?
  • Do you have out of state properties and/or significant assets?

Answering these questions will help and how a trust could benefit you and your family. During your meeting, your attorney will go into more detail than a blog post, but this is a good starting point to understanding the basics of a trust.

How a Kentucky Revocable Living Trust Works

When a client comes into my office to create a trust, I start by asking the client what assets he or she owns. Assets include things like checking and savings accounts, retirement accounts, business interests, investment accounts, real estate, and other significant assets.

Once we have compiled a list of what the client personally owns, we discuss the terms of the trust. If you're already familiar with the terms of the trust, feel free to skip ahead to the next section. If you need a refresher, here's a step-by-step outline of how a trust works:

  • The person who wants to create a trust is called the “settlor” or “grantor” of the trust. The settlor of the trust decides what they own that they want to put into their trust. While living, the settlor has full control over of the trust and full access to his or her assets in the trust.
  • The assets that the settlor transfers into the trust are called the “principal” or “corpus” of a trust. These assets are retitled from the settlor's personal name into the name of the trust. The trust now owns the settlor's properties and accounts.
  • The settlor appoints a trustee to manage the principal of the trust. While the settlor is still living, he or she is the trustee. When the settlor dies, the successor trustee assumes responsibility of the principal and any income made off of the trust. The successor trustee manages the trust property and accounts until the entire principal is distributed and the trust is terminated.
  • The beneficiaries are the heirs of the trust. They typically inherit the principal of the trust after the settlor's death. Note that sometimes the settlor wants to provide the principal of the trust to his or her beneficiaries in a second trust or multiple trusts. The purpose of creating some of these secondary or sub-trusts is often to protect against divorce or creditors.

It's easy to get lost in the mumbo jumbo of legal jargon, so let's return to Bob's situation as an example. Bob agreed that a revocable living trust would be the best option for his current financial situation. At this point, everything and everyone involved with creating a trust is basically renamed with legal labels. The process for executing Bob's trust would look like this:

  • Bob is the settlor of the trust. He decides what assets he wants to put into the trust.
  • Bob's financial accounts, business percentage, and properties are the principal of the trust (also called corpus of a trust). Bob transfers the title of his accounts and properties out of his personal name and into the trust's name. The name on his assets would now say something like “The Bob Family Revocable Living Trust.”
  • While Bob is still alive, he is the trustee. He has full control of his financial accounts, his partnership in his business, and his personal and investment properties. When Bob dies or becomes unable to manage the trust, the successor trustee takes over. If Bob names his son-in-law as the succeeding trustee, his son-in-law will assume responsibility of the financial accounts and properties. He will also distribute the assets to the beneficiaries according to the terms of Bob's trust.
  • Whomever Bob wants to inherit his assets are the beneficiaries of the trust. If Bob wants to leave specific assets to his daughter and to his grandchildren, he can specify this in the terms in the trust.

Benefits of a Revocable Living Trust

Why should you take the time to create a revocable living trust? The main benefit of this type of trust is that it allows more flexibility and control than what a will can offer.

Trusts require more of the settlor's time and expenses upfront; however, trusts are the most effective option for protecting assets from probate and litigation.

If you are considering whether you need a trust, review the following benefits of a trust:

Avoids probate

Probate is required when a person dies and owns property in his or her name only. When a revocable trust is created, all properties included in the trust are re-titled into the trust's name. This means that all assets included in the trust do not have to go through the Court-supervised process of probate.

Avoids ancillary probate in other states

If you have out of state property, retitling these assets into the trust avoids what is known as “ancillary probate” in other states.  are protected from ancillary probate since trusts do not have a “state of residence.”

Provides privacy

Wills are public documents filed with the county court. Anyone who is interested has access to the content of a will. When clients express a desire for privacy, creating a revocable living trust is an appealing option. The terms of a trust are private to anyone other than the parties directly involved. No one outside the settlor, trustee, and beneficiaries is privy to the content of the trust.

Control distribution to beneficiaries

Trusts can determine how and when beneficiaries receive their inheritance. If the settlor does not want the beneficiaries to receive their inheritance in a lump sum, he or she has some flexibility. The terms of a trust can split a beneficiary's inheritance into payments that are distributed throughout the beneficiary's his lifetime.

Trusts can also hold a beneficiary's inheritance for his lifetime to protect against certain issues. For example, the terms of the trust can stipulate that the beneficiary's inheritance be temporarily withheld if the beneficiary is going through divorce, struggling with addiction, or experiencing a similar hardship.

Contact Hopkinsville Trust Attorney John Crow

Creating a revocable living trust can seem daunting, but the benefits of avoiding probate, streamlining your estate, and privacy can be substantial. Contact an experienced trust attorney to help you navigate the process and create a trust to protect your assets. An experienced attorney can also advise you on whether a trust is the most appropriate option for your situation and circumstances. To discuss your estate planning goals, contact Hopkinsville trust attorney John Crow or set up an appointment online today.

About the Author

John Crow

John Crow is the founder of Crow Estate Planning and Probate, PLC, a boutique law firm with offices in Clarksville, Tennessee and Hopkinsville, Kentucky. He has extensive experience in guiding people through the important and often complex decisions surrounding wills, trusts, probate, conservatorships, and business formations.

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