Your initial estate plan may focus on nothing more than ensuring you do not leave behind an intestate estate in the event of your death. As such, a simple Last Will and Testament may be the sum total of your plan; however, as both your estate assets and your family grow over the years, that initial estate plan will need to grow along with them. One of the most common additions to a growing estate plan is a living trust. If you are unfamiliar with living trusts, you should make a point of learning as much as possible to help you decide if a living trust would be a beneficial addition to your comprehensive estate plan. With that in mind, the estate planning attorneys at The Mendel Law Firm, L.P put together some questions and answers to some frequently asked questions about living trusts. If you have additional questions or concerns, please feel free to contact our office to schedule a consultation.
-
Put simply, a trust is a relationship whereby property is held by one party for the benefit of another. A trust is created by a Settlor, also referred to as a Grantor or Maker, who transfers property to a Trustee. The Trustee holds that property for the beneficiaries designated by the Settlor in the trust agreement. Most people enter into trust agreements on a regular basis without realizing it. Imagine, for example, that you are going out of the country for an extended period of time but you also want to give your daughter some family heirlooms you found in the attic. You ask your brother to hold onto the heirlooms until your daughter can pick them up. In that scenario, you have created a trust agreement wherein you are the Settlor, your brother is the Trustee, and your daughter is the beneficiary of the trust.
-
-
All trusts are can be broadly divided into two categories – testamentary and living trusts. A testamentary trust is one that does not become active until the death of the Settlor and which is typically triggered by a provision in the Settlor’s Last Will and Testament. A living trust, also referred to as an “inter vivos” trust, activates when all formalities of creation are complete and the trust is funded.
-
-
Yes. Living trusts can be further divided into revocable and irrevocable trusts. A revocable living trust can be revoked or terminated by the Settlor at any time and for any reason whereas an irrevocable living trust cannot be revoked or terminated by the Settlor for any reason. Because a testamentary trust is triggered by a provision in a Will, and a Will can always be revoked up to the point of death of the Testator, a testamentary trust can always be revoked as well.
-
-
The Trustee of a trust administers the trust which requires the Trustee to take on a wide range of duties and responsibilities, including:
- Following all trust terms unless they are illegal or unconscionable.
- Communicating with beneficiaries.
- Investing trust assets using the “prudent investor” standard.
- Managing trust assets.
- Distributing trust assets.
- Keeping trust records.
- Preparing and filing trust taxes.
- Defending the trust against legal challenges.
-
-
A trust agreement is the name of the document used to create a trust. Within the trust agreement are the terms, created by the Settlor, that dictate how the trust will operate. Trust administration refers to the Trustee’s job of overseeing the terms of the trust in action. As a general rule, the more complex and/or valuable the trust assets are, the more time consuming and complicated it is to administer the trust.
-
-
The Settlor of the trust may appoint anyone to be the Trustee of the trust. This often leads to one of the most common mistakes related to trusts – appointing the wrong person as Trustee. A settlor frequently appoints someone close to him or her, such as a spouse, close friend or family member, without taking the time to evaluate the individual’s suitability as Trustee. People often think that appointing someone they trust to be the Trustee of their trust is all that is needed. While the Trustee certainly should be trustworthy, there is more to the job of Trustee than that. Ideally, the individual should really have a legal background as well as some experience in finance given the types of duties the Trustee will have when administering the trust. In fact, for larger, more complex, trusts, it is often best to appoint a professional Trustee.
-
-
A living trust can help achieve a wide range of estate planning goals; however, some of the more common uses for a living trust include:
- Avoiding probate
- Incapacity planning
- Asset protection
- Medicaid planning
- Planning for parents with minor children
- Special needs planning
- Pet planning
-
-
In today’s age of the internet, where legal documents can be located with a few clicks of your mouse, it can be tempting to try the DIY route when creating a living trust. The time and money you think you are saving by foregoing the assistance of an attorney, however, will likely cost your beneficiaries considerably more of both in the long run. Those fill-in-the-blanks trust agreement forms you encounter on the internet are typically riddled with errors and omissions that frequently result in the need for litigation – precisely what you may have been trying to avoid by creating a trust. To ensure that you actually reap the intended benefits from your trust, and that your trust is administered without the need for litigation, be sure to work with an experienced trust attorney during the creation of your living trust.
-
