A revocable living trust is an estate planning tool that is generally used in situations where the client would like to have more control over their assets after death. A revocable living trust is a type of legal document that holds property for a particular purpose. Property of a trust is held “in trust” for the beneficiaries of the trust. A person that establishes a trust is typically called a “grantor” or “settlor.” Many times, when people establish a trust, they also execute a document called a “pour over” will that transfers any remaining property of the grantor into the trust, this way a person can be sure all their property is handled by the trust. The client’s assets that are titled into the Trust’s name prior to death will not have to go through probate.
Even though living trusts are currently a trend in estate planning – this tool is not the answer to every estate plan. It is primarily used in specific situations where the client would like to have more control over their assets after death. The following situations could be a sign that you should form a living trust:
- if you have minor beneficiaries
- irresponsible beneficiaries
- if you want to ensure your assets stay within your family (not the biggest fan of your daughter or son’s fiance)
- second marriage
- avoiding probate
- making sure all of your assets stay private.
Although all client needs are different, these situations or concerns will almost always raise an indicator that a revocable living trust should be discussed.
There are entire books written about the complexities of living trusts, but for more clarity on this subject, here is a simple example of where a trust could be useful. Example: Simon and Susan have two children and $500,000 in assets. One child is 10 years old and the other is 16 years old. The 16 year old child is similar to many other teenagers and irresponsible with money. Simon and Susan are worried what will happen to their money if both of them were to pass away. If Simon and Susan were to pass away, the 10 year old child’s portion of $250,000 would be placed in a guardianship depository in which the guardian would have to go through the court to get expenditures approved and be released to the child when they reach the age of 18. The 16 year old would have the same situation in place as the 10 year old and would receive all $250,000 at once when they turn 18 years old. If Simon and Susan had a living trust, all of their assets could be placed in a trust with specific directions. They could add directions that once the children turn 18 that the funds are only to be used for living expenses and education (instead of a brand new Mercedes that that teenager had been eyeing) Overall, most clients will wish for their young children to have access to money over staggered periods of time and a revocable living trust is way to make that plan happen.
This is just one common example where a trust would be useful for a client’s goals. Make sure you do not fall into the trap of establishing a trust unnecessarily. This tool is only one of the many available to a savvy estate planner. If you would like to go over your estate planning options with attorneys who will listen to your particular needs, please call The Sauter Law Firm to set up a free consultation at 513-314-5078.