The short answer is that a Revocable Living Trust (“RLT” or “Living Trust”) is another tool that can transfer your assets upon your death. If a client has a Will as the centerpiece of their estate plan I describe that as a “Will based” plan. If they use an RLT as the centerpiece, I describe that as a “Trust based” plan.
Let me start by explaining what a trust is and how it works. A trust is simply an agreement between two parties: (1) the trust maker (often called the Grantor, Trustor, or Settlor); and (2) the trustee(s). The Grantor establishes the trust, sets its rules, determines what property will be in the trust, and decides who will serve as trustee. In addition, the Grantor determines who will benefit from the trust; the beneficiaries. Once the trust is created, the Grantor then passes control of the trust over to the trustee, who manages it for the benefit of the beneficiaries.
Some trusts are irrevocable and some are revocable. As the name suggests, the one I am focusing on here is revocable, meaning the Grantor can decide to get rid of it. In addition, if it is created to be the centerpiece of you estate plan, it is also a Living Trust, because the Grantor has created it during his or her lifetime. In contrast, you can also have a testamentary trust. This type of trust is created is a Will or as a “sub-trust” in an RLT. However, the testamentary trust does not come into existence until the Grantor has passed away.
Perhaps the best way to describe a living trust is through an example. Consider Tom and Cindy Client. They determine that it is time to do their estate planning, and along with their attorney, decide to have an RLT as the centerpiece, or foundation, of their estate plan. They like the fact that an RLT allows them to control and manage their assets while they are alive even if they are incapacitated, provides efficient transfer of their estate upon the death of them, and ultimately provides asset protection for their beneficiaries. Once Tom and Cindy agree on the terms of their trust, they sign it (which puts it into effect) as both Grantors and Trustees.
While Tom and Cindy are alive, they will not only be the Grantors of their RLT, they will also serve as co-trustees, as well as the primary beneficiaries; they still have complete control over their property and assets. Upon the death of one of them, the surviving spouse can serve as sole trustee, or if they desire, the surviving spouse can serve with a co-trustee (perhaps one of their children). Tom and Cindy create their RLT so that upon the death of both of them, their estate is split into three separate trusts, one for each of their children. Each child can serve as their own trustee along with a co-trustee at a predetermined age established by Tom and Cindy. Furthermore, upon reaching another predetermined age, the children can serve as the sole trustee of their own trust.
An RLT is an excellent vehicle to have as the foundation of your estate plan. Look for my next post, where I will compare and contrast a Will and a Revocable Living Trust.
Thanks for reading,
David