The Simple Living Trust

The simple living trust, sometimes called an "inter vivos" (Latin for "lifetime") trust, is revocable. The person setting up the trust, called the "grantor", transfers ownership of assets to the trust, but maintains complete control over everything, including the right to terminate the trust during the grantor's lifetime.

In the case of a married couple with children, when one spouse dies, the trust can be set up to remain revocable, with the surviving spouse in control as sole trustee. When the surviving spouse dies, the trust funds can be divided into separate trust shares for each surviving child, or the trust can continue as one fund (called the "single pot approach") for the benefit of all the children.

Choosing A Trustee

In most families with living trusts, the parents initially choose to be their own co-trustees. If desired, the parents can consult a financial advisor initially, with periodic reviews. This arrangement gives the parents maximum "hands on" control over the appropriate use of funds to meet the family's needs.

In some situations, however, the parents are uninterested or unable to continue managing their assets after transferring them to a trust. They realize that with a revocable living trust, using another as a trustee does not mean loss of ultimate control. The grantor can issue orders to- or fire- the trustee, if necessary.

If the grantors are not to be their own trustees, they obviously want a trustee with a similar investment philosophy, as well as the necessary experience to handle the amount and kind of assets placed in trust.

In some families, an adult child is well suited for the role of trustee, or alternate trustee. But a child is probably a trust beneficiary, which gives him or her at least the opportunity for preferential treatment. And if there are other beneficiaries, they might view the child who is trustee with jealousy or suspicion, even if there is absolutely no basis for it. Parents also may mistakenly assume that a child who has done well financially for himself is automatically qualified to invest money for others.

If a child is ruled out, and there are no other appropriate trusted friends or family members, grantors of trusts should consider an institutional trustee such as a bank or trust company. These institutions charge a percentage of the overall trust assets, but also have minimum annual fee schedules, which vary with the degree of effort put into managing the trust. When interviewing an institution as a potential trustee:

• Determine whether you feel personally and philosophically compatible with the person who would actually be managing the trust, by asking questions about investment strategy
• Get a detailed accounting of all fee and services offered
• Find out whether the institution can tailor a trust to meet your specific needs, instead of fitting you into a "one size fits all" prearranged program
• Find out how receptive the institution would be to a co-trustee who is a family member
• If the trust would be managed by a trust committee, find out about the decision-making process involved

At the Death Of the Last Grantor

If there is only one grantor, the simple living trust becomes irrevocable at his or her death. If the grantor has been serving as his or her own trustee, it's important to have an alternate named to handle post-death affairs and property distribution.

The trustee distributes the assets as directed by the trust, bypassing probate court. The will that should accompany a living trust is sometimes called a "pour over" will, because it "pours over" into the trust any assets that haven't already been formally transferred to it, or that the grantor acquired after the living trust was created. A will is also still necessary to name a guardian for minor children.

Michael Palermo is a Lexington, Kentucky estate planning lawyer and Certified Financial Planner. More information about estate planning can be found on his Web site.

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