First and foremost, this topic is generally misunderstood and is much simpler than folks are led to believe. Really, it is not that complicated – I promise! Below is a basic explanation for general use on what is often referred to as a “Will Substitute” type of revocable living trust.
What ?is ?a Revocable Living? Trust?
According the Black’s Law Dictionary, A Revocable Living Trust is, “[t]he agreement that relates how the property of an individual is to be distributed during their life and after their death.” See Black’s Law Dictionary Free Online Legal Dictionary 2nd Ed. (http://thelawdictionary.org/revocable-living-trust/). A person creates this while alive (hence the word “living”) and can exercise complete control over it while alive. At death, the distribution plan kicks in and the persons or entities that are going to inherit will take according to the plan the trust maker puts in place.
Generally, an individual (or couple in a joint trust) will make a Revocable Living Trust as a substitute for his or her Will. In the typical probate avoidance revocable trust, the Maker of the trust (sometimes called “Grantor” or “Settlor”) will usually be the beneficiary and the Trustee. As the name implies, the beneficiary gets the benefit of the assets placed into the trust. The Trustee is in charge of the trust. The biggest benefit is the Successor Trustee(s) named in the Trust document will be able to efficiently assume control of everything in the Trust and has a fiduciary obligation to honor the trust terms. The Trust will have a name and become the title holder over the Maker’s assets. For a trust to be valid, it must have a Maker, beneficiary and trustee. The other essential element is the trust must have something in it – i.e. it must be “funded” by taking some asset. This is called the “corpus” of the trust.
I hope I have not lost you yet! In summary, a person makes a trust, benefits from it, and is in charge of it while alive. They put their own “stuff” into the trust, such as a house, checking/savings accounts and other personal property. The Trust has a name, such as “My Will Substitute Trust”, and there is proper evidence of transferring the assets into the trust. The house went in by deed transfer and the checking and savings were modified when the Certificate of Trust was shown to the banker at ABC Bank and the request was made to put the accounts into the trust. After that, you live life like a normal person.
Because I am placing my own assets into the trust (this is called a “grantor’s trust”), according to IRS regulations and rules, the assets have not left my control so it is as if I still have them. The IRS will not treat this any different order proscar than if I never made the trust to begin with. Why? Because, like I said, I have control and can revoke the trust entirely. So, while I have a stack of paper that creates the trust, and I have evidence that my assets are in the trust, the IRS will not treat this as independent from me. An individual with a Revocable Living Trust as a Will Substitute is going to file their normal 1040 and other tax documents.
What are the benefits of having a Revocable Living Trust as a Will Substitute?
Avoid Having a Judge Decide
The key benefit is that it will avoid probate over assets that are held in that trust. Nevada may be remarkably efficient in getting an estate through probate, but a Revocable Living Trust could make it so that family members can automatically assume control. The Successor Trustee(s) shows a banker the Certificate of Trust and viola! – magic happens and that trusted individual can start handling the estate. With real property, a notice is filed with the county recorder’s office. Does that sound better than going to a lawyer (and who wants to go to a lawyer – let’s be honest) to find out what Probate is, how long it will take, and likely pay more fees to get through the process? Yes – I thought you might agree.
Avoid an Adult Guardianship
If someone has a properly drafted trust, it can prevent guardianship (or conservatorship in other states). I have seen this first-hand and the notice provisions (called “citation” in the guardianship context) of an adult guardianship, mandatory hearings, together with all the documents that go to the court can be cumbersome. If an accounting is required, it is even more cumbersome; and by that I mean expensive because it takes a lot of legal time and effort. All of that can be avoided with a trust and other related powers of attorney!
Other Key Benefits
I have to mention that doing a trust allows the family to keep the matter out of the court system with means it is generally a bit less public. The terms of the trust may require notice to beneficiaries, but that is quite a bit different than a public document on file with the local district court. Your family maintains complete control in a time of stress and, likely, mourning the loss of a loved one.
There are many other important things to learn about estate plans and trust – and I will go into this later on. However, the assets that are placed into the trust can make life so much easier for the loved ones left behind. If you have been thinking of making one of these Will Substitute trusts, think of us at Surratt Law Practice Estate Planning.
By Attorney Melissa L. Exline, Esq.