What is a Revocable Living Trust?
A revocable living trust (also known as an “inter vivos” trust) is an estate planning tool used primarily to establish who will manage your assets during incapacity and how your property will be distributed upon your death. Most living trusts are “revocable” because you retain the power to amend them as your circumstances or wishes change. They are “living” because they are created and become effective during your lifetime.
There are a few key roles inside any revocable living trust. The creator of the trust is known as the “settlor” (also known as the “grantor” or the “trustor”). Those who benefit from the trust are the “beneficiaries”. A “trustee” is a person assigned by the settlor to manage and administer the trust assets on behalf of beneficiaries until a final distribution is made to beneficiaries and the trust is finally closed.
The trustee owes fiduciary responsibilities to the beneficiaries with regards to how the trust and the trust assets are managed. The trustee of your trust should be someone who is strong, fair, compassionate, fiscally astute and independent in exercising judgment.
In creating a trust, a legal relationship is formed between the creator of the trust and those who will benefit from the trust assets. The trust separates legal title from equitable ownership of the property inside the trust. Legal title is owned by the trustee of the trust and equitable ownership belongs to the beneficiaries.
What are the Benefits of a Revocable Living Trust?
There are many benefits for creating a trust. Generally, one of the primary benefits of creating a revocable living trust is to avoid the necessity of a probate proceeding upon your death. Probate is a judicial process used to settle a decedents legal and financial matters upon death. A will is consulted in this probate process. The probate judge ensures that the person in charge of fulfilling the direction of the will, the “personal representative”, fulfills those duties properly. Concerns such as whether the deceased signed a will under duress or lacked capacity to actually create a will are also addressed during a probate proceeding.
If no will has been created or if no will can be found, the state’s intestacy laws are automatically applied at the probate proceeding and the deceased estate property is managed and distributed pursuant to those laws during the probate case.
With a trust, the time, expense, stress and very public process of a probate proceeding can be avoided. Trust assets are placed into the trust while you are alive and presumably aware of what you’re doing and why. In a trust, you usually have opportunity to review, amend and alter your trust. Additionally, you can change who will serve as your trustee and who will benefit at any time while you’re alive. For these reasons, a probate proceeding isn’t necessary to oversee the management of the trust assets upon your death. The law assumes you knew what you were doing and had ample time and opportunity to ensure your intentions were spelled out, updated and clarified if needed.
For these reasons, a trust is typically harder and more expensive to contest than a will; and the longer the trust has been in existence, the more difficult it becomes to set the trust aside. In this sense, trusts aid in discouraging legal proceedings and escalating contention among beneficiaries.
How Can a Revocable Living Trust Help Me During Incapacity?
Besides avoiding probate, a trust also enables the trust creator (settlor) to avoid having to go through a conservatorship proceeding when the settlor is alive but incapacitated. Normally where there is no reliable power of attorney created to manage financial assets or where the incapacity is going to be for an extended duration, a court appoints a person as conservator to manage property and affairs of the incapacitated person; the conservator regularly reports back to the court. Before making this conservatorship appointment, the court must understand the nature of the incapacity of the individual in question and a public proceeding must be endured.
Nevertheless, where a trust has been created, the trustee (or a named successor trustee if necessary), manages the assets inside the trust according to the specific terms of the trust. Thus, with a trust, the incapacitated person’s assets are privately managed in a pre-planned way and the incapacitated person’s health struggles are kept private. No conservator is necessary.
In Sum…
In sum, there are many advantages to creating a revocable living trust. This trust provides a plan to manage assets while you are incapacitated and to make distributions to beneficiaries after your death in a manner that is private rather than public. Trusts are difficult to contest and provide an estate management structure that ensures clarity and order. Many tax savings can be achieved with a trust (these are better discussed in person with your attorney). Beneficiaries who are facing divorce, dealing with creditor issues or addictions or who are otherwise not ready to responsibly receive assets from the trust can be protected from themselves and their life circumstances with a trust. There are several other advantages in creating a revocable living trust.
To understand further how such a device might benefit you specifically, give us a call.
