Revocable Living Trust – What is a living trust?
A revocable living trust is a legal document that helps you tell the world certain things upon your death. First, it tells who you want to take care of your children. Second, it tells people who gets your assets. Third, it helps you tell people who is to take care of you in case of a disability. Finally, it can help with any tax consequences regarding your assets.
Of course, the BEST thing about a trust is that you avoid probate – more on that in a minute.
A Revocable Trust is also called a Living Trust or even a Loving Trust. The Trust has three separate parties to it:
- The Settlor– Also called grantor or trustor, this is the individual that the Trust is about. It’s this person that puts their assets into the trust. This doesn’t just have to be a single person, many times a trust is created on behalf of multiple people (think husband and wife).
- The Trustee– This is the person who holds title to the property. They have a duty to manage the property (called a fiduciary duty) of the trust. In a normal Revocable Trust situation, the Grantor (or Settlor/Trustor) is also the trustee during his/her life. Upon their death, the trustee is the person that the Grantor names in the Trust.
- The Recipient– The beneficiary is the person that gets the assets from the Trust. This can be the Grantor’s children, spouse or even a charity. You can even name someone else entirely. Trusts are very flexible documents.
A couple of key points: a Trust is considered revocable only during the lifetime of the Grantor. When they die, neither their spouse, beneficiaries nor trustee can amend the trust (exception: the court can always amend the trust). Second, it’s only a “Living Trust” during the Grantor’s lifetime.
Revocable Trust – How do you Create One?
Well, hire a lawyer. What a lawyer does is that they draft the trust agreement, which is signed by the Grantor/Settlor/Trustor and the Trustee. Also, the spouse must consent to any transfers of property that would be affected pursuant to their spousal election pursuant to state law.
But a Trust is ineffective if it is simply a legal agreement. The Trust must have property put into it (called “funding”). This is where you title your home and bank accounts into the Trust, such as The Mike and Mary Jones Revocable Trust dated January 1, 2014.
Living Trusts – Can I change it?
Of course. This is one of the big advantages of a Trust. In a typical situation, there is language included that allows you to amend the trust at your discretion. Thus, any life scenario – like a marriage, death, adoption – allow you to amend the Trust.
Revocable Trust – Does it help you avoid Probate and the costs of Probate?
Absolutely. Probate is the process of passing property to the heirs named in a will or according to the laws of intestate succession pursuant to the laws of the state. However, any property that is within a Revocable Trust is not subject to the probate process. This significantly reduces, or even eliminates, the time and money spent in the probate process. Further, by having a Revocable Trust, there is rarely a bond needed for probate. Many times, it simply involves filing the will.
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