Revocable Living Trusts
As described on the main page, a living trust can be thought of as a box.
This box stays intact after you pass and can hold assets for as long as the trust's instructions state.
A trust is managed by a trustee or multiple trustees.
The grantor (the person creating the trust) typically names himself or herself the initial trustee of the trust. Married couples can be co-grantors and co-trustees.
If the initial trustee(s) is (are) incapacitated or resigns (due to health, travel, etc), the successor trustees step in to manage the assets.
When the grantor or both grantors have passed, the trust's distribution instructions take effect and the successor trustees follow the rules of the trust for who and when beneficiaries receive assets.
Once all assets have been distributed, the trust terminates.
The above is simple explanation how a living trust functions. We now explore each area in further detail.
Grantors
The grantor is the person who creates the living trust and is the only person with the powers to amend the trust or revoke the trust.
The grantor is the only one who can amend / change trust language.
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The grantor is also typically the initial beneficiary of the living trust, meaning the assets must be managed and in the grantor's best interests by the trustee while the grantor is still living.
The grantor can transfer his or her personal assets into the living trust while he or she is living - and this step is crucial if avoiding probate is one goal of the living trust.
A married couple can create a living rust and act as co-grantors. When the first grantor passes, depending on how the living trust is worded, the surviving spouse can continue to make amendments to the living trust.
Grantors are also known as trustors and settlors, often depending on where the trust was created.
Trustees
A trustee is a person who manages a trust's assets. Trustees deposit money in bank accounts, make withdrawals, sell vehicles, purchase property, etc. All actions must be in the best interests of the trust's current beneficiaries and the trustees act in a fiduciary manner, which means trustees can be legally held for their actions if they act recklessly or irresponsibly.
If a beneficiary feels the trustee has acted irresponsibly, the trustee may be taken to court and held liable for damages if a judge finds fault with the trustee's actions.
The grantor is the initial beneficiary and often the initial trustee, so it is unlikely someone would drag himself or herself to court. But if the grantor/initial trustee is unable to act, a successor trustee will be the acting trust. After the grantors pass, the trustees and beneficiaries are sometimes not the same people.
Successor trustees
When a successor trustees acts while the grantor/initial trustee is still living but incapacitated or has resigned, the successor trustee acts in a manner similar to a financial power of attorney. The successor trustee acts in the same fiduciary manner as the initial trustee and is liable for his or her actions.
Successor trustees act like both financial power of attorney and executors. Choose these people carefully!
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When the grantor has passed, the successor trustees are in charge of transitioning the estate to the beneficiaries. The successor trustees follow a procedure similar to probate, such as creating an inventory of assets and debts, liquidating assets, notifying creditors, repaying debts using the living trust's assets, filing taxes and other steps before distributing the estate.
In some cases, the living trust may instruct the successor trustee to withhold distributions to young beneficiaries until certain requirements, such as age, are met. The successor trustee often has the power to grant early partial or full distributions for health, education, maintenance or support needs.
The living trust will provide exact instructions for the successor trustee to follow. If the successor trustee has any questions, the successor trustee should consult an attorney.
The active beneficiaries of the living trust have a right to see the living trust documents and all records of transactions related to the living trust. Hence, it is good for the successor trustees to have good bookkeeping skills. The successor trustee can often hire a professional bookkeeper or accountant to assist with these tasks with the estate picking up the tab.
The same holds true for financial decisions: the successor trustee can hire a financial advisor or continue working with the grantor's advisor.
Successor trustees are sometimes listed in order:
- Jane
- Jack
- Jenny
Sometimes successor trustees are listed together as successor co-trustees to share the tasks and decision making:
- Jane and Jack
- Jenny
When creating your living trust, choosing successor trustees will be one of the most important decisions made. Organization skills, interpersonal skills (dealing with family members and other successor trustees) and real-world experience (buying/selling a home) are all factors that can increase the likelihood of a smoother transitioned estate.
Corporate trustees are professional businesses that act as successor trustees if you do not feel your family or friends are up to the task. Corporate trustees typically don't charge until the services are required. The main benefits of corporate trustees are they have experience with transitioning an estate and they will not be intimidated by family members. The drawback is they may be unaware of relevant family dynamics.
Consult an attorney to discuss the best options for successor trustees.
Funding a Living Trust
The most important step in creating a living trust is transferring assets into the living trust, a process called "funding".
An attorney can prepare documents to transfer non-titled personal property, such as jewelry, furniture, clothing, etc. into the trust and an attorney should be able to prepare deeds for real estate in your state to transfer real estate into your living trust.
The documents you sign with the attorney will not automatically transfer other assets into the trust. A little legwork is necessary to transfer assets into the living trust.
If you do not transfer assets into your living trust prior to your passing, those assets outside the living trust may need to go through probate.
A living trust comes with a pour-over will, which is a last will & testament stating that any assets outside the living trust that are solely owned by the deceased and without beneficiary designations should be distributed into the living trust, which will then distribute the assets to the beneficiaries.
Essentially, the pour-over will is a safety net to catch assets outside the trust. Remember, a will does not help assets avoid probate, which is why those assets it catches may require probate first.
Read the
trust funding instructions.
