Revocable Living Trusts – The Mechanics
WHAT YOU NEED TO KNOW
When I am talking with clients “trusts” seem to be one of the legal terms that causes the most confusion. I have listed below the most common questions and their answers. Hopefully the answers will help you understand some of the basic issues surrounding trusts.
WHAT IS A TRUST?
A trust is an agreement regarding the management of assets. There are many different kinds of trusts. For instance, there are charitable trusts, life insurance trusts, education trusts, etc. The most commonly used trust and the one that most people are thinking of when they refer to a trust is a revocable living trust.
WHAT IS THE GOAL OF A REVOCABLE LIVING TRUST?
Every trust is created to accomplish a goal. The purpose of a revocable living trust is to avoid probate, an issue we all have to face. That is why it is the most common type of trust.
HOW IS A TRUST AGREEMENT STRUCTURED?
All trusts have a trustor, a trustee and at least one beneficiary. They can all be the same person or they can be three different people, depending on the purpose of the trust.
WHAT IS THE ROLE OF THE TRUSTOR?
The trustor is the person whose goals drive the design of the trust. The trustor signs the trust agreement to create the trust. The trustor transfers the assets he wants the trust to control to the trust. For instance, he may sign a deed covering his home for purposes of transferring ownership of the home to the trust. He may also decide to have the trust own his investments (or any other assets) in which case those assets will no longer be in his name but will be titled in the name of the trust.
WHAT IS THE ROLE OF THE TRUSTEE?
The trustee’s job is to follow the plan the trustor has built into his trust agreement. Often the trustor of a revocable living trust is also the initial trustee.
WHAT IS THE ROLE OF THE BENEFICIARY?
The beneficiary has the best job. The beneficiary gets the benefits of the assets in the trust, i.e., usually the income from the investments and the right to live in the home held by the trust, etc. With a revocable living trust, the trustor is also the first beneficiary of the trust.
HOW DOES A REVOCABLE LIVING TRUST AVOID PROBATE?
A probate is needed if you hold title to assets in your name at death that need to be passed to your heirs. If you create a revocable living trust and transfer ownership of all your assets to the trust, you do not own anything in your name that requires a probate.
IF I HAVE A REVOCABLE LIVING TRUST, HOW DO MY ASSETS GET TO MY HEIRS?
When you design your revocable living trust, you include instructions in the trust to the trustee about what to do with the assets held in the trust’s name on your death. In this way it is similar to your will, i.e., it gives instructions on what is to happen to your assets after your death. However, the implementation of your will is supervised by the court. That is the probate process. With a revocable living trust, you rely on your successor trustee to follow your instructions in the trust without anyone supervising that he does what you have directed.
ARE THERE OTHER WAYS TO AVOID PROBATE?
In Washington, often the easiest way for a married couple to avoid probate is with a community property agreement. Sometimes right of survivorship designations or life estate deeds are an appropriate alternative.
SO, WHAT LEGAL DOCUMENTS SHOULD I USE?
The best thing to do is to review your goals, your assets and your family’s situation with a knowledgeable estate planning attorney to identify the simplest legal technique to achieve your goals.
Elizabeth A. Perry, a member of the National Academy of Elder Law Attorneys, has been helping Clark County residents with their estate planning needs for over 20 years. Her practice emphasizes wills, trusts, probate and Medicaid planning. You are invited to call her to schedule an appointment or sign up for a class at (360) 816-2485. ©Liz Perry 2015
(The above should not be construed as specific legal advice and is intended for general information purposes only)