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Revocable Living Trust Basics

Trusts come in endless variety for various purposes, but all Trusts share certain characteristics - a person transfers assets to one or more trustees to keep in trust for beneficiaries. The Revocable Living Trust is probably the most common kind of Trust.

A Revocable Living Trust is created when the person setting up the Trust (the grantor, trustor or settlor) and the persons who will act as trustees sign a Trust Agreement. The agreement transfers the grantor's assets to the trustees, describes how Trust assets are to be handled during the grantor's life, and provides how they will be disposed of at death. At death, the Trust allows trustees to distribute the assets according to the terms of the agreement without any probate court proceeding. During his or her life, the grantor may act as the sole trustee. Establishing this kind of trust will usually not change how the grantor files income taxes.

Advantages:

Lifetime purpose - No power of attorney or court-appointed conservator is necessary. In the event of incapacity, trustees pay the grantor's bills and manage assets.
At-death purpose - Assets avoid probate. Assets held by the Trust at the death of the grantor can be disposed of according to the Trust. This is a particularly good strategy for those who own real property in multiple states. The Trust minimizes disruption of assets (especially important in family businesses) and makes distribution efficient. The Trust, a private document, minimizes publicity. A Trust may also be helpful in segregating separate property and preserving it for children of a prior marriage.

Disadvantages:

Transferring assets into the names of the trustees can be time-consuming. Title to assets needs to be changed to the Trust and beneficiary designations need to be coordinated.
Dealing with the assets once they are in trust can be complicated (especially if trustee is incapacitated).
Drafting a Trust is expensive - usually double or more the cost of creating a Will and power of attorney.
A Will is still necessary. Since it is not always possible to be certain that all assets have been transferred into the Trust, the grantor must have a Pour-Over Will that states that any assets the grantor may have outside the Trust will be given to the trustees to be added to the Trust. Probate may be necessary for assets not transferred into the Trust.

For additional information, please contact one of the Estate Planning attorneys at Henningson & Snoxell:

The content of this article is intended to be informational and is not to be construed as legal advice. Consult with an attorney regarding your specific circumstances.