Clients and attorneys alike are often confused about what makes a “trust”. In the simplest context, a trust is an agreement between three parties: The Grantor, the Trustee, and the Beneficiary. The Grantor is the party that places property into the trust. Another way of saying this is titling property to the trust. The Trustee is the party who manages the trust assets and distributes the trust assets and income. The Beneficiaries are the parties who receive the benefits of the trust. Trusts can be very simple consisting of only one page, or they can be super complicated consisting of several hundred pages. Trusts can be used for innumerable purposes from estate planning to business planning to even hiding assets. For this article, we will look at trusts for estate planning purposes only.
The most common and simplest trust for estate planning is called a revocable living trust. A Grantor will create a trust agreement with him or herself. The Grantor is normally also the Trustee and Beneficiary while they are still living. In other words, the Grantor titles his or her assets into a trust, and that same Grantor serves as the Trustee by managing the trust assets. Also, that same Grantor and Trustee is the Beneficiary of the trust income and assets. Until the Grantor passes away, the trust is “revocable” which means the Grantor can do away with the trust at any time. The trust also names a Successor Trustee who manages the assets if and when the Grantor is no longer able to do so or passes away, and Beneficiaries who are entitled to the benefits of the trust after the Grantor passes away.
There are several benefits to a revocable living trust. First and foremost, the trust assets do not have to be probated. In other words, when the Grantor passes away, the Successor Trustee immediately assumes power over the assets and can manage and distribute them according to the Trust instructions. This can save the beneficiaries from significant expenses and time that are incurred with probate.
Another less acknowledged benefit is the fact that the Successor Trustee can assume power of the trust assets before the Grantor’s death. Individuals often experience a period of time, sometimes many years, when they are not able to manage their financial affairs. With a Trust already in place, the named Successor Trustee can easily assist the Grantor with their financial affairs. A durable power of attorney can accomplish the same goal, but it terminates immediately upon the Grantor’s death.
There are a couple of other advantages to a revocable living trust that deserve mentioning. The Grantor can choose to set up a “spend thrift trust” within the primary trust for one or more beneficiaries which limits their access to the assets either indefinitely or for a period of time. This can be used for a beneficiary that hasn’t been responsible with money or has unpaid judgments against them. The beneficiary receives limited distributions based on the trust instructions, and the share remaining in the trust cannot be reached by creditors. The Grantor can also choose to distribute the assets when the beneficiary reaches a certain age or distribute portions of the assets when a beneficiary reaches different ages. Finally, if a Grantor wants to leave a person with special needs assets, but those assets may jeopardize their public assistance, the Grantor can instruct the Successor Trustee to create a Special Needs Trust which will allow that beneficiary to benefit from the trust without losing their benefits.
This all being said, is a revocable living trust right for everyone? Not really. It is many times possible to accomplish these goals without the expense of creating a trust. There are many factors to consider, and it does not just depend on the size of the estate. Your attorney must look at the type of assets you have and the differing situations of the beneficiaries. Our office offers free consultations to help you determine your best estate planning method and to see if a trust fits your needs.
