Trusts and Estates

The Simple Living Trust

You've probably heard of "living trusts," but what are they, do you need one and how would you use it? A simple living trust, or "inter vivos trust" is when someone puts assets into a trust, during his life, but keeps control over the trust. The simple living trust can serve several purposes during life, and have a part in your overall estate plan.

Basic Trust Roles and Terms

First, you need to know a few terms. The person who sets up the simple living trust is the grantor; alternate names are the creator, settlor or donor. The grantor transfers ownership of assets making up the trust to the trustee; this could be a person or an entity, such as a bank. The beneficiaries are those who will benefit from the trust.

A simple living trust is typically revocable. This means you, as the grantor, keeps control over the trust. You can change trust terms, and can choose to end the trust if you like. You can change trustees and terms affecting beneficiaries.

Using a Simple Living Trust

Why use a living trust in the first place? Take the example of a married couple with children. A trust can be used during your life to help manage your assets and to provide a framework for continuing to manage these assets if you become incapacitated. At the death of the first spouse, the trust goes on, with the surviving spouse as trustee. When the second spouse passes away, the trust allows a bypass of probate, which is the legal process to settle a deceased person's affairs. The trust also gives you, your family and your estate some privacy because the trust documents aren't made a part of public court records.

Choosing Trustees

In the example of a married couple with children, spouses often choose to be co-trustees for their living trusts. When one spouse dies, the other continues alone as a sole trustee. Trustees can consult with professionals, such as financial advisors, accountants and lawyers for guidance when needed. This way, the trustees/spouses keep direct, hands-on control of their assets, just as they would without the trust.

You and your spouse don't have to serve as trustees, and at some point, naming another person as a successor or back-up trustee will likely be needed. For example, one purpose of the trust is to allow for seamless control of your assets if you become incapacitated and can't tend to your affairs. If you're the sole trustee, your trust could direct that if you can't serve any longer, another person or entity takes over as successor trustee.

What are your options for other or back-up trustees? People often turn to close and trusted friends and family members. Banks or trust companies are options, and may be needed with larger estates, but fees charged by these businesses are a factor to remember. Also check out how the trust department actually manages the trusts and interacts with beneficiaries.

You'll likely find trustee candidates closer to home. Often an adult child can serve as trustee, but think about family politics and how naming one or two children as trustee or co-trustees will work out. Another family member or friend can often be the better choice. No matter who you select, the trustee should understand your wishes, follow the terms of your trust, and be willing to take on the role. It helps if the trustee shares your financial values and investment philosophies.

Finally, pick the trustees right for you; don't feel you must choose a certain family member or friend.

When Your Living Trust Ends

When you, as the grantor, pass away, your revocable living trust ends, but it still plays a role in settling your affairs. At the time of death, your trust becomes irrevocable and its terms focus on managing and distributing your assets.

Your co-trustee, or your alternate trustee steps up and carries out the trust's terms. Part of your estate plan should be your "pour-over will." Your will directs how property not included in the trust, and other matters, such as naming children's guardians, are handled. The will directs that your other assets are transferred or "poured over" to the trust.

From here, the trust keeps your estate plans private, unlike your will, which is entered into court records, and resources are saved in bypassing the probate process. The trust can continue for a number of years, giving the means to manage assets for your loved ones, and finally to distribute those assets according to your wishes.

Questions for Your Attorney

  • Why should I think about using a simple living trust now? Do I need one?
  • Is it best to use a living trust if I think I'll lose the ability to manage my affairs, say to dementia, and my family won't be able to agree on how to care for me and manage my assets?
  • If I lose mental competency, or after my death, can others contest a trust, similar to a will contest?
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