Revocable Living Trusts

Introduction

One alternative to a will-based estate plan, which may be preferable for some people, is the living trust. It avoids many of the expenses and pitfalls inherent in utilizing the basic will and the probate process. The primary benefit of the living trust is that it avoids probate. As opposed to a will, which is basically a set of instructions to your personal representative (often carried out under court supervision), a trust is essentially contract between the grantor (which is you) and the trustee (which is you during your lifetime). Although they are legally binding documents, trusts often do not require the same court intervention and supervision that wills require, because they do not need to be "proved" by the court. Instead, the trustee that you name has full authority to act on the trust's directions.

Additional potential benefits of the living trust include the reduction, or in some cases, elimination of federal estate taxes. A properly drafted trust can provide for successor trustees, assuring an uninterrupted distribution of your estate according to your instructions - even if you become incapacitated, thus eliminating the need for court-appointed conservators or guardians. Further, a living trust allows you to exercise great control over how your property is managed after your death. As creator of the living trust, you can have the peace of mind of knowing that your loved ones will be provided for according to your instructions, as written into the trust document. Additionally, all of this will occur while keeping the entire process private and out of the public eye. While they may seem complex, trusts are actually rather simple instruments.

A trust is a relationship between three parties. A common living trust scenario works as follows: The grantor (also called the "settlor") executes the trust instrument and contributes assets to the trust. "Contributing assets" simply means that ownership of assets is placed in the name of the trust. The trustee is the person or entity with the legal right to possess and manage the trust assets, and ultimately, to distribute them. Prior to death or incapacity, the grantor of the trust is also the trustee of the trust. Therefore, while living, a person who sets up a living trust retains complete control over all trust assets. A successor trustee is named by the grantor to take over control in the event of death or incapacity. The trustee is under a fiduciary duty (a legally enforceable duty of utmost loyalty) to the beneficiaries. This duty obligates the trustee to follow the grantor's instructions left in the trust document, and to obey all relevant and applicable state law. The final parties to the trust agreement, the beneficiaries, possess equitable interests in the trust assets. This means that, although the trustee controls the assets while they are in trust, the beneficiaries are the ultimate recipients of the assets, and will receive them according to the trust's terms.

Unlike a will, which only provides directives to pass assets at the time of your death, the living trust is actually set up as owner of your assets. Once you sign the Declaration of Trust, then you may begin transferring assets into it. As the initial trustee of your living trust, you will have full use of all of your assets. You can continue to make all decisions regarding investing, buying, selling, etc. your assets. An additional benefit of the trust is that you may appoint successor trustees. You may appoint anyone that you trust. If you should die or become incapacitated, your living trust will survive, and the successor trustee will have the authority to make decisions on your behalf in accordance with the terms of your trust agreement. Any assets that you allow the trust to "own" may also avoid probate.