August 28th, 2019
This article was originally published as part of our series on trusts in the Dominion Post, Senior Post special. Check back each month to stay up to date as we release each article from this series!
Over the past couple of months, we discussed trusts in general, and then testamentary trusts which are trusts created for your heirs upon your death. This month, we are focusing on the revocable living trust. We often refer to the revocable living trust as a “bucket” in our office. The bucket holds your assets for you, but it has no lid so you can reach inside and manage your assets as if they were still in your name.
As we have discussed in past articles, a trust is simply an agreement between the person creating the trust (the grantor), the party who will manage the trust (the trustee), and those who will benefit from the trust (the beneficiary). With a living trust, the answer to all three is usually quite simple – the grantor! Meaning that a person or a couple creates a living trust while they are living, and as long as they have mental capacity, they may act as their own trustee, and they use the assets of the trust for their own benefit, so they are the beneficiaries.
One of the most popular benefits of a living trust is that trust assets do not need to be probated upon the grantor’s death. Probate is the legal process a deceased person’s estate goes through to ensure creditors are paid off and that the estate is properly distributed to the heirs as provided by the last will and testament. Unfortunately, probate usually takes at least several months regardless of the size of the estate and the process is of public record. Many people are surprised to learn that the will, as well as “an accounting of the assets going through the will”, must be recorded by the County Clerk.
Common concerns are usually whether the size of a person’s estate warrants a living trust and whether the grantor can maintain control of the trust. Of course, the size of the estate is a consideration, but equally important is whether a living trust achieves the person’s goals regarding privacy and expediency of settling their estate upon their death. Control is not an issue because the grantor maintains control over the trust assets as long as they have the mental capacity to do so.
Even after a grantor can no longer manage their affairs, in a sense they still maintain some indirect control because they have previously designated their successor trustee. The successor trustee may be an individual such as an adult child, or it could be a professional, such as a bank’s trust department. Once the grantor passes away, the trustee must still pay off the creditors prior to distributing the trust assets, but the probate process is not required. The trustee merely looks to the terms of the trust regarding the distribution of the assets to the beneficiaries.
Creating a living trust is usually more expensive than preparing a last will and testament. In addition, it takes a little more effort to properly move assets from individual ownership to trust ownership. However, the benefits of the living trust are apparent when the grantor needs assistance with management of assets or after the grantor’s death when probate is avoided.
In next month’s article, we will continue to focus on trusts, so it may be useful to save this article for reference. In April, we will focus on “common pot trusts” which are used to provide for minor beneficiaries according to their individual needs until they all have reached adulthood and had an opportunity to attend college.