Revocable Living Trust
A Revocable Living Trust is created in a written document in which you, the grantor of the Trust, set forth in detail the arrangements for the management and distribution of your property during your lifetime and after your death. Typically, you will serve as the trustee (or manager) of the Trust property until you are unable or until your death. The Trust must have one or more beneficiaries – you are the sole beneficiary of the Trust until your death. You may name anyone you want to receive the Trust property when you die, and you can decide when the heirs/beneficiaries are to receive their inheritance. Since the document is revocable, you may change or terminate it at any time.
After signing the Trust document, in order for it to take effect you must transfer and re-title your property into the name of the Trust. The process of transferring and re-titling your property is known as funding. You need experienced legal counsel to draft a Revocable Trust and advise you in regards to funding it. There is no one-size-fits-all Trust agreement. Each Trust must be drafted with your particular assets and unique family circumstances and relationships in mind.
ADVANTAGES OF HAVING A REVOCABLE TRUST
- Avoidance of probate, including avoiding the related court costs and attorney fees, delays and risk of disputes among your heirs.
- Privacy, because your Trust agreement is not a matter of public record.
- Asset protection for your heirs (if the Trust is drafted properly), including if an heir gets a divorce or has other financial problems.
- Tax savings for income tax and estate (death) tax purposes.
- Increased control over your estate if you become incapacitated and after your death. The increased control results from your naming the person of your choice to handle your Trust, and by providing detailed instructions to that person regarding the administration of your assets.
DISADVANTAGES OF HAVING A REVOCABLE TRUST
- Expense of planning because it is more complicated and time consuming to have a Trust than it is to have a simple Last Will.
- Short-term inconvenience, since at the time the Trust is established you must be sure that your assets are properly funded in the name of the Trust.
THE GRANTOR
Any competent adult may create a Revocable Living Trust. A single person may establish a Revocable Trust for him or herself, and a married couple may establish one Trust together or two separate Trusts. Whether one joint Trust or separate Trusts are right for any given couple depends upon the nature and extent of your assets and your family circumstances. As specialists in the field of estate planning, we are particularly proficient in counseling our clients with such decisions.
THE TRUSTEE
The trustee is responsible for managing the Trust assets. You nominate the trustee in the Trust agreement. In a typical Trust arrangement you (or you and your spouse) will serve as the trustee as long as you are living and able. The Trust agreement will also typically provide for a successor trustee to handle the Trust upon your passing or if you become incapacitated.
You may nominate any competent adult or any bank that has a trust department to serve as a trustee. A family member, friend or trusted professional may also serve, or you may choose a local bank or a national one. Two or more persons may serve together as co-trustees, and each trustee may have different duties and authority. You may retain the power to remove a trustee and appoint a new one. Each trustee may be given unique and detailed instructions on how your property will be managed and eventually distributed. How much authority and what limits are placed on the trustee is up to you.
Choosing the right trustee is essential. Whether you should have one person serve, more than one, or a trust bank, in order to choose the right trustee you must understand the nature of the trustee’s duties and authority and what actions the trustee may be required to perform. We have decades of experience working with (and against) trustees, advising them in potentially problematic situations, and critically analyzing their judgment. Our seasoned expertise in such matters is vital to helping you choose the right person or entity to serve as a trustee.
THE BENEFICIARIES
The persons who will receive your assets upon your death are known as beneficiaries. You may name whomever you want as a beneficiary of your Trust. You may provide they receive a fixed portion of your estate, a percentage, a specific asset, or any combination. You may require the trustee distribute each beneficiary’s share of the Trust as soon as possible after your death.
You also have the option of requiring a beneficiary’s inheritance be withheld until he or she reaches a particular (mature) age, or you may even have portions given out in increments over time (say ½ at a particular age and the balance a number of years later). If you choose to hold the Trust funds back until a later time, you may provide the trustee with guidelines on how to apply the funds for the beneficiary.
For example:
- You might require the trustee only pay for college provided the beneficiary is diligently applying him or herself, or is maintaining a certain grade point average.
- You may require the trustee distribute a fixed sum of money every year to help support the beneficiary, or only require the trustee to provide financial support to the beneficiary until he or she is able to support him or herself.
- The trustee may be directed to help with a reasonable down payment on a first home, or to pay for a first wedding.
- You may build in an incentive for your beneficiaries by matching every dollar the beneficiary earns with an extra distribution from the Trust, or making an extra distribution if the beneficiary obtains an undergraduate or graduate degree.
There is no limit to the standards you may write into your Trust, but each provision will have different implications for the beneficiary, the trustee and the Trust fund itself. We have extensive experience dealing with Trust beneficiaries, so we can provide you guidance regarding the terms of any Trust you establish for your heirs and beneficiaries.
FUNDING THE TRUST
There are basically two steps involved in having a Trust. First, you have the Trust prepared and you sign it. Then, you must legally transfer your assets to the Trust. Deeds, account transfers, beneficiary designations, new bank accounts, and other legal forms may be necessary. Assets not transferred to the Trust may not ultimately be distributed according to the terms of the Trust, and might still be subject to probate. So, funding your Trust is critical.
For example:
- In most cases, stocks, mutual funds and other securities should be re-titled into the name of your Trust. This will involve setting up a new account in the name of the Trust.
- IRAs, 401(k)’s and other retirement accounts contain tax-deferred funds and must be handled carefully. Generally speaking, married couples should name each other the primary beneficiary (as opposed to the Trust). If your beneficiaries are young and you have directed your trustee to hold funds back until they obtain a more mature age, you should consider naming your Trust the contingent beneficiary (as opposed to the beneficiaries themselves). Doing so will ensure the funds are properly managed, but there may be unfavorable income tax consequences.
- Your real estate should generally be titled in the name of your Trust. However, there are complications in transferring your real estate to your Trust, including with your mortgage company and the tax assessor. Care should be taken before you deed your property to your Trust. You should note that there are special types of deeds that are designed to coordinate with Revocable Trusts, and those deeds generally should be utilized.
- Life insurance beneficiary designations generally should be changed to name the Trust as the beneficiary.
Funding your Trust will involve a certain amount of diligence and should always be overseen by a qualified attorney to ensure that the changes made are consistent with your estate planning documents and objectives. Our attorneys and legal assistance have extensive experience dealing with all of the aspects of funding so that the process is completed properly.
