I believe that a revocable living trust is one of the best estate planning tools available. It can do all kinds of things, such as laying out how children will receive their inheritances, avoiding probate and making the administration of your affairs when you die as seamless as possible.
Related article: Funding a Trust
Understand the Different Types of Trusts
A living trust, also known as an inter vivos trust, places some of your assets into a trust while you are alive and names the trust as a beneficiary of other assets. During your lifetime, you will still go about your business as you always have. However, with all of your assets linked to the trust, things will be simpler for your loved ones when you die.
Living trusts come in 2 flavors: revocable and irrevocable. I believe the best type of living trust is revocable because it gives you flexibility. A revocable living trust can be changed or even completely annulled if your life circumstances change. We don’t know what the future holds, so creating an irrevocable trust, that cannot be changed, could paint you into a corner.
Couples in a relationship generally will put together a joint trust. It reads like an instruction manual. It covers what happens to assets when one of the members of the couple dies and also deals with how assets will be distributed when both members of the couple are deceased. A single person will put together a trust that, like the couples’ trust, distributes assets.
Select Your Beneficiaries
It is important to decide what the purpose of your trust should be. It can be helpful to think about who should benefit from your assets. There are virtually no limits on who you can name as a beneficiary. If you name young kids, you can state how old they need to be to get an ATM card for their inheritance. You can put in the trust that inheritances will be in a lump sum or in increments. Often, people create trusts with specific purposes in mind. For example, grandparents may set up a trust dedicated entirely to providing for all of their grandchildren’s college educations. Pet owners can even create trusts to provide funding for their beloved furbabies.
When we meet, we will discuss the goals you have for supporting your family and loved ones when you are gone. Because trusts can offer so much flexibility, we will find a solution that meets your needs. My goal in holistic estate planning is to find the right solution that aligns with your vision for your loved ones.
Select a Trustee
A trustee is the named boss of the trust. It is their job to put your instructions regarding assets into action. The trustee manages the trust assets for the beneficiaries’ benefit. Typically with living trusts, the person who creates the trust, known as the settlor, grantor or trust maker, is the initial trustee.
Importantly, trustees need to understand that, even if they are a beneficiary, a trust is not their personal piggy bank. These two roles need to be separated in their heads and in their wallets. It is very important to name a trustee who can do this.
I recommend that my clients select one or more successor trustees. Having this kind of transition plan in place is an important way to ensure that there won’t be any disruptions in managing the trust. A trustee can be a family member, a close friend or a company. It is up to you.
Create the Trust Documents
After you’ve selected your beneficiaries, how they will receive money, and who will serve as successor trustees, I will prepare the trust documents. You’ll review them, ask questions, tweak the language, and then sign them in front of a notary public.
It’s important that you, your trustee, and successor trustees understand the purpose and limitations of this trust. Often, my clients and I will go over various hypothetical situations when we are creating the trust documents. This gives them a fuller idea of the duties and responsibilities involved. It’s far better to anticipate potential problems now than to be blindsided in the future.
Fund Your Trust
Next comes the fun part – transferring assets into your trust. This is done in 2 ways and I will help you.
First, any real estate that you own will be transferred into the trust by using a new deed that I will prepare for you. The deed must be recorded with the County Recorder.
Second, financial accounts, including your retirement plans, 401(k), life insurance policy, and even your basic checking account, will need to list the trust as a beneficiary. This means that when you die, that is when these assets will actually be in the trust. If you are married, your spouse will typically remain your primary beneficiary and the trust will be the secondary beneficiary. If you are single, the trust will be the primary beneficiary.
Personal property can be included in the trust as well and then distributed after you die according to your wishes.
This article does not contain legal advice. It is for informational purposes only. If you have questions about setting up a living trust or want to discuss other estate planning documents, please contact me today to set up an appointment.