The estate planning attorneys here at our firm often explain the anatomy of living trusts to interested clients. Before we proceed to do just that, we should point out the fact that a revocable living trust can be a very useful alternative to a last will.
Assets cannot be distributed until the estate has been probated when a will is utilized, and the wait for the inheritors will typically be somewhere around a year. There are also myriad expenses the pile up during probate, and the money comes out of the pockets of the people that are named in the will.
Another pitfall is the fact that it is a public proceeding, so anyone that is interested can obtain probate records to find out how the assets were distributed. This can cause hard feelings and acrimony in some instances. When a living trust is used instead, the process of probate will not enter the picture, so these drawbacks are completely avoided.
If you were to establish a living trust, in legal parlance, you would be called the grantor of the trust. The people that you are going to be leaving money to would be the beneficiaries. Someone has to distribute assets to the beneficiaries, and this would be the trustee.
Some individuals harbor misconceptions about trusts. They think that you lose control of all assets that you convey into any type of trust, so they turn away from the idea. It is true that there are some trusts that are irrevocable, and you surrender incidents of ownership when you establish one of these trusts.
However, with a living trust, things are different, because the trust is in fact revocable. You have the power to simply dissolve the trust at any time and take back direct personal possession of the assets. Short of this, you can change the terms at any time. For example, you can add a beneficiary or remove a beneficiary.
Role of a Living Trust Trustee
You can act as the trustee and the beneficiary when you establish a living trust, and you name successors to assume these roles after you pass away. When it comes to the successor trustee, you could empower this individual to administer the trust if you ever become incapacitated.
When you think about a trustee, you probably start to envision people that you know that would be capable of handling complicated financial tasks. It is certainly possible to name an individual to take over the role of trustee after you pass away. However, there are a number of reasons why you may want to take pause before you go this route.
For one, a family member or close friend will know the beneficiaries personally. There can be difficult decisions to make at times with regard to following your instructions as they are stated in the trust declaration.
To provide an example, you may instruct the trustee to distribute $2000 a month to a certain beneficiary with the stipulation that you would allow for additional distributions in extreme circumstances.
What constitutes an extreme circumstance? There are shades of gray, and the trustee would have to make a determination. It can be hard to say no to someone that you have a personal relationship with, even if it is probably the right thing to do. The anticipated longevity of the trustee that you name is another thing that you should definitely take into consideration.
To avoid conflicts of interest and matters of succession, you could utilize a professional fiduciary like a bank or a trust company to administer the trust. Plus, if you make this choice, you can be certain that the assets will be handled in accordance with strict professional standards, and there will be inherent organizational oversight.
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