I am taking a relative easy topic for me from my first entry into this blog: the use of a Revocable Trust (or living trust) in estate planning as the best will substitute.
Before examining the use of a revocable living trust, it is important to dispel a few myths about this device. Contrary to some perceptions, a revocable living trust does not have any income tax advantages during the grantor’s lifetime. So long as the grantor still possesses the power to revoke, the income will be taxed to the grantor under the grantor trust rules in the same way it would have been had the trust not been established. In addition, because the grantor retains dominion and control over the property transferred to the living trust, an incomplete gift has occurred upon its establishment and no gift tax consequences result upon its creation. Furthermore, upon the grantor’s death, the property in the trust will be includable in his or her gross estate for estate tax purposes assuming the grantor dies in possession of the power of revocation or releases the power within three years of his or her death.
Notwithstanding that a revocable living trust does not provide any tax advantages to the grantor, there are a number of nontax advantages of a revocable living trust when compared to other techniques that may be used in the implementation of an estate plan for a client (e.g., using a will as the main estate planning vehicle).
Hood Law Blog 