Would you buy a car without a motor? Of course not. You may be surprised to learn that some Revocable Living Trusts, “RLTs” are motorless that is without assets and could therefore be dubbed essentially motorless. Here’s why.
Example, let’s say a couple in their 70’s, owns with a large farm and some securities, all jointly held, which were deeded to them when purchased, with “Rights of Survivorship”. Rights of Survivorship, means, in this context, the surviving spouse owns everything at the first death. Even if RLTs are prepared for each spouse but the farm and securities are not retitled to reflect the RLTs as owner, the farm and securities will pass to the surviving spouse. Often, the Husband dies first and then, the Wife becomes the sole owner of everything. When she dies five years later, without, of course, funding her RLT, all of the marital assets go through probate and may, eventually go to her RLT after probate.
Is it unusual to discover unfunded RLTs? No. It is, in fact, rather common. Why? Many creators of RLTs don’t appreciate the need for funding of RLTs and some estate planners don’t fund the RLTs they draft. It is easier to ignore asset transfers if the lawyers do not insist upon having new deeds, funding the RLT, prepared and signed when the RLTs are signed.
A humorous observation among lawyers is that you can tell a new attorney from an experienced attorney by their respective approaches to reading a new court decision. A new inexperienced attorney will usually read from the beginning. A seasoned attorney will generally read the conclusion first to determine if the case was won. There is a parallel when reading RLTs. Many RLTs have schedules attached which list the assets that have been transferred (titled) in the name of the Trust. When reviewing your RLT, if you have one, start with list of trusts assets (often Schedule A) at the end of the RLT. In different terms, start by discovering if your RLT is funded, i.e., has a motor full of your assets.
Assuming your Revocable Living Trust (RLT) is funded, then those assets are distributed as determined by the wording of your RLT. Your trust could say, for example, until Mom passes all assets stay in the Trust until she passes. Upon her death everything is split equally among Peter, Paul and Mary. But what if Mary has a drug problem and two wild children (your grandchildren)? Your RLT could specify that distributions to Mary and her errant children must be approved and monitored by Peter. But what if Peter dies or becomes senile. In that event the RLT could specify that Paul takes over the fiduciary duties of Peter.
What if both Peter and Paul cannot serve as successor trustees of your RLT? If your wife is dead, and Peter and Paul can’t help then the RLT could designate a trust company, or a trust company and your wife’s niece, Sara, to be successor trustees of your RLT so Mary and her children can receive money from your RLT with continuing supervision from the trust company and Sara.
Such arrangements can be accomplished with your RLT without court monitoring or probate supervision. Furthermore, should some of your above-mentioned family members die or refuse to serve as successor trustees, your RLT can be changed or amended. In extreme situations your RLT could be revoked entirely, hence the term “revocable.”
While the Peter, Paul, and Mary example described above is somewhat unusual. The message is, with trusts and planning, you can plan for alternatives that benefit you and your family. In addition to flexible estate, planning trusts can save significant amounts of U.S. Estate tax if you have an estate large enough to incur estate tax. Good news, Virginia eliminated its estate tax years ago.
Not all estates are subject to Federal estate tax. In 2026, the lifetime exemption is $15 million per person, $30 million for a married couple. In addition to these sizeable lifetime exemptions, your estate can be further reduced by using the annual gift tax exclusion of $19,000 per donee. For those married couples with estates in excess of $30 million there are ways to postpone the payment of estate taxes until the second spouse dies by using the “estate tax marital deduction”.
In view of the now sizeable exemption from federal estate tax, and the elimination of such tax in Virginia, most estates should focus on family needs and avoiding probate by using Revocable Living Trusts. Newland and Associates can provide valuable advice in planning for your future.