When you create your first estate plan, it may be a very rudimentary plan consisting of nothing more than a Last Will and Testament. As your estate and your family grow, you will need to add tools and strategies to that initial estate plan to address the changes in your life. One estate planning tool you may consider incorporating into your plan is a revocable trust. There are numerous and varied ways one can be used to further your estate planning goals.
Understanding How a Trust Works
A trust is a fiduciary legal arrangement that allows a third party, referred to as a Trustee, to hold assets on behalf of a beneficiary or beneficiaries. The person who creates a trust is referred to as the “Trustor,” “Settlor,” or “Grantor.” The Trustor transfers property to a Trustee, appointed by the Trustor. The Trustee holds that property for the trust’s beneficiaries, invests trust assets, and administers the trust according to the terms created by the Trustor.
Trusts fall into one of two categories – testamentary trusts or living trusts. A testamentary trust is activated at the time of death by a provision in the Trustor’s Will. A Will can be revoked up to the time of the Testator’s death, so a testamentary trust is also revocable up to that point.
A living trust is activated as soon as all formalities of creation are in place and the trust is funded. Living trusts are further divided into revocable and irrevocable living trusts.
How Might I Use a Revocable Living Trust in My Estate Plan?
Deciding which type of trust best fits your estate planning needs and goals is a decision you should make only after consulting with your estate planning attorney. It may help, however, to learn common reasons for including a revocable living trust in your estate plan:
- Avoid probate – at the time of your death, the assets you then own will make up your estate. Probate is the legal process usually required before these assets can be distributed to your beneficiaries. Probate can be time consuming and expensive, which is why people often include probate avoidance as an estate planning goal. One way to decrease your estate’s exposure to probate is to use a revocable living trust. Assets held in a trust bypass the probate process and can be distributed to the intended beneficiaries shortly after your death.
- Incapacity planning – a comprehensive estate plan should address your possible incapacity as well as your death. If you become incapacitated, someone will have to take control of your assets and finances. A revocable living trust is an excellent incapacity planning tool that allows you to appoint yourself as the Initial Trustee and appoint the person you want to take control of your estate as your Successor Trustee should you become incapacitated or when you die. You transfer your assets into the trust and continue to manage them as long as you are able. If you become incapacitated, the Successor Trustee takes control of the trust assets without the need for any court intervention.
- Protecting the inheritance of a minor child – for the parent of a minor child, one primary goal of an estate plan is to ensure that the child’s financial needs are met if something happens to the parent. If you are the parent of a minor child, your minor child cannot inherit directly from your estate. To resolve this dilemma, many parents create a testamentary or living trust. Using a testamentary trust makes sense because the trust won’t be needed unless the parent dies. If one is needed, the Trustee can manage the trust assets until the child reaches the age at which the assets are to be distributed directly to the child.
Contact an Estate Planning Attorney
For additional information, please join us for an upcoming FREE seminar. If you have additional questions or concerns about incorporating a revocable trust into your estate plan, contact the experienced estate planning attorneys at Parman & Easterday by calling 405-843-6100 or 913-385-9400 to schedule your appointment today.