Created to transition certain legal rights in case of incapacity, revocable living trusts are an important tool for those planning for their future. It’s a written contract between the grantor or settlor (the one who creates it) and the trustee – the one named to oversee the trust. It’s not at all uncommon, especially in Vermont, that a grantor is also the trustee. It might be that there is more than one grantor, too. It’s these types of versatile options that make them popular.
In a traditional trust agreement, the owner or grantor must provide specifics associated with the trust and how it will operate. Not only that, but it also puts into place those protective mechanisms for another to oversee the trust, such as defining the parameters for managing, investing and distributing the assets. These parameters may be as specific as the grantor wishes or it can be that the trustee is given full liberties in the decision making process. Typically, though, it’s a combination of both.
What Revocable Living Trusts Can Do
The “living” part of the trust is simply a distinction that the grantor created it during his lifetime. He may make it a funded trust by moving assets to it or he can opt to hold off from transfers until after his death, which is referred to as an unfunded trust.
The “revocable” part of the trust is exactly as it sounds: the grantor may revoke it in its entirety or different parts of it as he or she sees fit. He may add or take away assets and change his grantor. Again, it’s the versatility that’s so attractive.
Other benefits include the avoidance of probate, which is something everyone strives for in their estate planning process. Further, there are often estate tax savings. It’s the ability to plan for the unexpected, the privacy (since probate is eliminated) and versatility that really prompts so many to use these financial tools. For married couples, other options are introduced, including “subtrusts”, which means each spouse can cover other purposes. For instance, a subtrust can be created by a couple to hold their assets via a unified tax credit while another is used to hold those assets that qualify for a marital estate tax deduction. Each can have its own management and distribution parameters.
As mentioned, there exists the additional privacy that comes with setting up living trusts. Remember, your will becomes public knowledge, there for the viewing of anyone who wishes to see it. There are the public record considerations that spell out specific assets you held during your lifetime. On the other hand, those assets that are placed into the living trust not only are not subject to probate, but they don’t go into public record, either. You can keep private when you name the actual trust as the beneficiary.
The fact is, we don’t know what lies ahead in terms of our physical health. Incompetency is an important concern – whether it’s due to dementia as we age or if we’re in an accident that renders us unavailable to handle our business. A living trust adds an additional layer of protection since a successor trustee can be named to take over your affairs in the event of incompetency. You aren’t required to name a guardian or a conservator. Any assets outside this designation don’t have those same protections.
The versatility alone makes living trusts a solid decision, but you’ll want to discuss all of your concerns and ultimately what you hope to achieve with your estate planning lawyer. The sooner you’ve addressed these realities, the sooner you can move forward with fewer worries for your future.