by Jay Butler, Managing Director Asset Protection Services of America
Nobody wants to think about dying, or what happens to those whom you love when they are left behind. But at whatever age the sensations of being bullet-proof and immortality wear off, the weight of family responsibilities should have you taking action immediately to ensure future generations are not unduly burdened by your death.
A Revocable Living Trust is a document created while you are still alive and may be amended or revoked by you at any time. In order to best understand how a revocable living trust can benefit you, it is helpful to first understand how a trust operates. A trust is not an entity, but a contractual relationship created for the management and distribution of assets either during a person’s lifetime or after their death. A trust is comprised of four distinct and separate parts including:
The Settlor, often called a grantor, is the person who creates the trust. A settlor determines the terms and conditions whereupon assets are to be inherited or disbursed.
The Trustee is the person who holds, manages and disburses the assets of the trust. Trustees have a fiduciary responsibility to act in good faith and administer trust assets in accordance with the terms and conditions of the trust agreement.
The Beneficiary is the person who is benefited by the trust and may be a surviving spouse, children, grandchildren, friends, an individual, multitudes of people, charities or businesses. Beneficiaries may retain management control of the trust and have the right to receive assets and profits from the trust.
The Trust is the formal written agreement and the assets which comprise the trust or “corpus” (meaning body). A trust becomes active, or activated, once it has been funded. Funding requires the transference of asset ownership from the settlor to the trust.
When a Revocable Living Trust is created, generally you and your spouse are the Settlor, Trustee and Beneficiary of the trust while you are alive (also known as a “Merger”) and have full control over its assets.
Living Trusts originated in the 16th century where English landowners used trusts to circumvent the re-distribution of their property by the King. The King’s desire to oversee the transfer of wealth upon the death of landowners was the first form of probate. Over the centuries living trusts made their way throughout the British colonies and became firmly rooted in American jurisprudence.
An object of primary concern in estate planning is the avoidance of probate. Probate is a court procedure whereby upon your death your assets are distributed according to your will, or by state law if you have no will. It is important to note that “Testamentary Trusts” and “Wills” instantly send your estate into probate as the very definition of probate means “prove the Will”. Only a properly drafted living trust can keep your assets from entering probate.
There are many advantages to avoiding probate including the unnecessary costs to your family for attorneys, appraisers, real estate agents, and independent administrators. Probate is not a private proceeding but rather a public event where assets are often frozen and prohibited from being distributed without a court order. The average estate takes 1.5 years before the probate process is finally over. And if your estate contains real estate in multiple jurisdictions ancillary probates are held in each respective state wherein the properties are located. Should any problems arise, extensive time delays may occur as courts can extend probate for years to resolve conflicts and disputes. If probate can be avoided or eliminated, all reasonable measures should be taken to do so with a living trust.
Living trusts can help almost anyone with estates valued in excess of $100,000 (as even “smaller” estates are subject to probate proceedings) by saving 3% to 5% on on the value of the estate in court costs and legal fees. Living trusts also help well-to-do couples looking to maximize their Unified Credit and can assist individuals seeking to avoid court appointed conservatorships. If you have (minor) children, you will surely want to appoint someone through your living trust whom you know and trust to raise your children until such time as they are able to fend for themselves act in a mature manner upon reaching adulthood.
Our comprehensive revocable living trust includes a section for contacting immediate family, friends and advisors, a document locator, special power of attorney for assets, general power of attorney for property, durable power of attorney for healthcare, physicians directives, last will and testament (ie. pour-over will), trust agreement, schedule “A”, certificate of revocable living trust, declaration of final arrangements and all the necessary supporting letters for your financial institutions including your banks, investment accounts and brokerage firms. We also have additional resources for creating a “Special Needs Trust” for beneficiaries who are mentally or physically handicapped, a “Firearms Trust” to pass weaponry onto your children or grandchildren, and even a “Pet Trust” to ensure someone takes care of your horses or animals.
While revocable living trust assets are considered personal property to the beneficiary, which are not subject to judgement creditors in some states, a living trust is revocable and provides absolutely no asset protection whatsoever. Existing court precedence has held that, “If a settlor has the right to revoke a trust, all of the assets are treated as owned by the settlor and is ignored for creditor purposes, just as it is ignored for tax purposes.” The purpose of a living trust is to distribute estate assets according to your last wishes and desires without the need for public court proceedings and expensive attorney’s fees.
The Revocable Living Trust of our trust company (State Trustee Services, LLC) is created with a proprietary software program utilized by specialized document preparers and over 4,000 attorneys in top law firms nationwide. We provide state-specific comprehensive revocable living trusts in 49 states, including the District of Columbia (ie. Washington D.C.), but services are not available for residents of the great state of Louisiana who remain under Napoleonic Code. Whatever is properly placed into your Revocable Living Trust prior to your death prevents your family from going through probate.