By, Shirley Farmer, Attorney at Law
The information provided in this article is intended to give a general overview of the topic and is not intended as legal advice. For information specific to your situation, please talk with your estate planning professional.
Article #4, A Closer Look at Revocable Living Trusts
In the October 2013 edition we took a broad look at trusts; now let’s take a more in-depth look at one popular estate planning tool – the revocable trusts. A revocable trust is often called a “living trust” (not to be confused with a “living will,” which refers to your health care advance directives). As the name implies, this is a form of trust that you can create, amend and revoke as you choose throughout your lifetime.
When you create a revocable trust, you are the “grantor” funding the trust by putting your assets into the trust. The revocable trust allows you to name yourself as primary Trustee to manage the trust, and you should also choose who you want to take over as Successor Trustee when you are no longer able to manage it yourself, such as if you become incapacitated. A revocable trust is a popular estate planning tool because when you die, the property in the trust gets distributed to your stated beneficiaries without the need for that property to go through the probate process. For spouses, it is common to create a revocable trust together with each spouse as both Trustee and beneficiary. When the first spouse passes away, the trust assets can just become the property of the surviving spouse alone if you so choose. This way, it is only when the second spouse dies that the trust assets get passed along to the secondary beneficiaries named in the trust.
However, if you are creating a revocable trust with your spouse or partner, not all the assets in the trust have to pass to the surviving spouse upon the death of the first spouse. As is common for couples who have children from prior relationships or other family members they want to give specific assets, you can include provisions where certain assets are distributed to named beneficiaries upon the death of just one spouse. For example, if a husband owned one-third interest in a family property he had inherited from his parents that he wants to stay in his family, the trust document can simply indicate that if the husband dies first, that specific property interest goes to his family and does not pass to his wife as the surviving spouse. Talk with your estate planning professional to make sure they know your wishes so the beneficiary provisions of your trust are exactly how you want them.
When you create your revocable trust, you also must fund it by placing assets in the trust. Things that commonly go into a revocable trust are houses and other real property, money market/investment type accounts, some business interests, and other items of higher value. When you form a revocable trust the assets you put into the trust are retitled to be owned by the trust. So if you put your home into the trust, you will create a new property deed that transfers the property from your name to the trust. It will also be important if you acquire new property that you want included in the trust that it be titled or deeded correctly to reflect ownership by the trust. If you co-own property with another person, you can both transfer your interest into the trust (such as for a husband and wife creating a trust where they are both the grantors and beneficiaries). Also, if you co-own property with another person and you only own a share in the property (such as siblings who each inherited partial interest in a parent’s home), you can put just your interest share in the property into your own trust.
There are also things you own that you will probably not want to transfer to your revocable trust, such as: personal checking accounts, most cars, IRA and 401K accounts, and property you are selling or plan to sell in the near future. Generally, things of little value also do not get transferred into the trust; however, along with a revocable trust you should also have a Will (a special type called a “pour-over” Will) that indicates all remaining property not otherwise disposed of by the Will is to be “poured” over into the trust and distributed according to its terms.
As this form of trust is “revocable,” you can change your mind at any time and have the authority to add assets to the trust, remove items from the trust, or terminate it altogether during your lifetime. This means you keep control over your assets while you are still alive. To change the terms of your trust, you will either do an amendment or a restatement of the trust. An amendment is a shorter document that identifies only the portion you are changing, such as if you decide to change your Successor Trustee as time goes by. A restatement of a trust is generally the entire trust document redone with the changes included and the document reflecting it is a restatement, so the original creation date for the trust does not change.
It is not uncommon that a person creates a trust earlier in life, then as time goes by the assets previously held in the trust are gradually dispersed until there is nothing actually left in the trust. A common example is when a trust is created primarily to hold a family home, but as the owner ages the house may be sold or a reverse mortgage taken out to cover living expenses or the house transferred to the intended beneficiaries along the way. A trust that holds no assets is not much good, and sometimes it can be appropriate to just dissolve the trust altogether. If you choose to dissolve your trust, you should revise your Will at the same time.
A revocable trust is an important and detailed document, and you should consult an estate planning professional to discuss if one is right for you. Whether creating, amending or dissolving a revocable trust, make sure to let your estate planning professional know your wishes and keep him or her involved in any changes you need to your trust as life rolls along so you can always trust in your trust!