By Alex Montoya
Whether you have an established estate plan or are in the planning and research stage, you have probably heard the term “living trust.” Despite their widespread popularity, you may still be wondering what exactly they are, how they work, and what role they play or could play in your estate plan. Trusts are legal instruments commonly used by estate planners to accomplish many different estate planning goals. Trusts come in many different variations and can accomplish many different
For the purposes of this article, we will narrow our focus and examine the creation and purpose of “revocable living trusts.”
Creation of the Trust
Trusts, including revocable living trusts, are written, legal agreements whereby you, as the “grantor” or “settlor,” transfer assets in trust to be managed by a third party known as a “trustee” for the benefit of the trust’s “beneficiary” or “beneficiaries.”
You, as the maker of the trust, select the trustee and beneficiaries.
The trustee is a fiduciary who manages, controls, administers, and distributes the assets of the trust to the trust’s beneficiaries, the individuals who will ultimately benefit from the assets in the trust. You may be the trustee during your lifetime. You may also appoint a financial institution or any other competent individual to act as trustee during your lifetime. In the trust document, you will also appoint a “successor trustee,” an individual/entity responsible for administering the trust after your incapacitation or death.
As the name implies, a revocable living trust is a trust created and set to take effect during your lifetime. In the document itself, you will reserve the power to amend, alter, or revoke the document at any time after its creation but before your death, thus maintaining control over all of the trust assets during your life. You may fund, or transfer to, the trust a variety of assets including, but not limited to, real estate, securities (stocks), bank accounts, vehicles, and certificate of deposits.
Flexibility and Control over your Estate
Revocable living trusts come with many benefits and offer great flexibility when it comes to planning how your estate will be managed during your life and administered after your death. Some of the most significant advantages granted by revocable living trusts are flexibility and control. After you create the trust, you have the ability, with the help of your attorney, to alter the document at any time. However, on your death, the trust will typically become irrevocable, and your stated wishes will control the disposition of your assets in the manner dictated in the trust agreement. As contrasted with typical wills, trusts allow you greater control over the disposition of your assets after your death.
For example, in your trust, you can dictate how and when your beneficiaries receive their distributions, this level of control will prove to be advantageous in situations where a minor or fiscally irresponsible party may be set to receive a distribution of your estate.
Revocable Living Trusts and the Estate Plan
Although assets transferred to a revocable living trust during life bypass probate, it is still necessary to implement other estate planning tools to ensure a seamless transition of the entirety of your estate. In conjunction with your revocable living trust, you should utilize a simple will to control the disposition of any other assets not addressed by the trust. The utilization of a revocable living trust alongside your will, will ensure that there is no ambiguity in your wishes and all of your assets are accounted for at death. Having concise and direct wishes will reduce cost, improve efficiency, and potentially reduce complications that may arise between your designated beneficiaries after your death.
To learn more about how a trust may be utilized in your estate plan, please contact Alex Montoya at [email protected].