A Living Trust (also known as a "revocable trust") is a trust created by a person (known as the "Grantor") for use during that person's lifetime. It provides for payments of income for the Grantor and the distribution of the remaining assets of the Trust upon the Grantor's death. The Living Trust also includes an option which allows the Grantor to amend or revoke the Trust at any time. In order to amend the Trust, the Grantor must deliver to the Trustee an appropriate written amendment or restatement, signed by the Grantor. Typically, a Living Trust includes provisions that allow the Grantor, who often serves as initial Trustee, to manage the assets of the Trust until such time as the Grantor: - becomes "disabled" (unable to manage his or her financial affairs);
- simply prefers to have someone else (perhaps a bank's trust department) manage his or her affairs; or
- dies.
If that occurs, the Trust provides for a successor Trustee to take over the management of the Trust. Payments
During the Grantor's lifetime, payments of the net income of the Trust are made to the Grantor at fixed intervals. The amount of the payments can be changed from time to time at the request of the Grantor. When the Grantor dies, the Trust provisions designate the beneficiaries who will receive the Grantor's property, much in the same manner as a will. At the option of the Grantor, these provisions can include specific distributions and distributions of tangible personal property before the distributions of the remaining trust assets. The successor Trustee carries out these provisions in a role similar to that of an Executor. These provisions also allow the Grantor to include a trust share that will be maintained for the benefit of the Grantor's minor children through a trust for minor children. Advantages of a Living Trust
The Living Trust is often viewed as a preferable alternative to the Will. Some of the perceived advantages of the Living Trust relate to privacy, reduced probate costs, and management of assets. For more information, see the Trust vs. Will Comparison topic. And for a review of what to consider when deciding on a Living Trust, see the Factors to Consider topic. Note: In Texas and Wisconsin, exercise caution before designating the Grantor as the sole Trustee and the sole lifetime beneficiary. This is because, in those states, the trust may be considered "void" where all three interests -- grantor, trustee, and beneficiary -- "merge" and therefore the trust has no legal significance. Consult an attorney for advice. Note: This trust is not appropriate for estates (including life insurance proceeds and retirement plans) which exceed the federal estate tax applicable exclusion amount ($2,000,000). |