What Is a Revocable Living Trust?
A living trust is a legal relationship used to manage assets. In a trust, a trustee manages the assets on behalf of a beneficiary. A grantor, also called a trustor or settlor, is the person who creates the trust and places assets in the trust. It is called a living trust because the grantor establishes the trust and transfers their assets to it during their lifetime.
This is different from a testamentary trust, which is created by a person's will and does not take effect until after they die.
A living trust can be revocable or irrevocable. A revocable living trust is sometimes called a grantor trust or an inter vivos trust. It is "revocable" because the grantor can revoke or modify the trust at any point before they die.
A grantor cannot modify or revoke an irrevocable living trust after it is created. The grantor loses ownership rights of assets placed in an irrevocable trust. Irrevocable trusts are less common because they are more complicated. Consult with an estate planning attorney before creating an irrevocable trust.
You can place real estate, personal property, and financial accounts in a trust. If you use a revocable trust, you should name yourself as the initial trustee so that you can continue to use and manage your assets. If you have an irrevocable trust, you should name another person as trustee.
After your death, assets will be managed and distributed to your beneficiaries according to the terms of your trust. For example, if you have young children, you can dictate that the assets only be used to pay for their education and care until they reach a certain age, at which time they can take full ownership of the assets.
How To Get a Living Trust
You can ask an attorney to create your living trust, or you can create one yourself. If you choose to make your own trust, you should take the following steps.
1. If you are married, choose between a shared trust and separate trusts
Married couples can combine all their assets in one trust, called a shared or joint trust, or create separate trusts to keep their property separate.
Shared trusts are easier to create and manage, and they tend to be the preferred trust for couples who are in their first marriage.
Separate trusts require more work because both spouses will have to set up and manage their own trust. There are several reasons to have separate trusts - for example, protecting the inheritance of children from a previous marriage or sheltering one spouse from the other's creditors.
However, state laws vary as to separate trusts' ability to shield one spouse's assets from the other spouse's creditors. Some state laws consider all property acquired during marriage to be owned by both spouses, regardless of whose name the property is titled under. Because separate trusts can be more complex, it would be a good idea to consult with an attorney before creating two separate trusts.
2. Decide who your beneficiaries will be and how you want to provide for them
The trust beneficiaries are the people or charities that will receive money or property from your trust. Most people will choose their children, spouse, or other loved ones as beneficiaries.
When you die (or when you have a shared trust and both you and your spouse die), your beneficiaries will receive the assets remaining in your trust. Trusts offer flexibility for how assets can be distributed. If you have minor children, you can leave instructions on when and how to distribute assets to them.
For example, a trust can dictate that assets are to be used to provide for your children's education and care until they reach a certain age, at which point they can receive a lump sum payment for their share of the assets in the trust. Because trusts are flexible, you could stagger the payments so that your children receive lump sums at different times. For example, you could have them receive one-third when they are 18, one-third at 25, and the remainder when they are 30.
If you have a child with special needs, you should consider creating a special needs trust with the help of an attorney.
3. Choose your trustee and successor trustees
In most cases, you should be the initial trustee of a revocable trust so that you can maintain control over the assets you place in the trust. If you are married and have a shared revocable trust, both you and your spouse should be co-trustees so that you both can access and manage your assets. If you have an irrevocable trust, you will name another person to serve as the initial trustee.
A successor trustee will manage your revocable trust after you (and your spouse if you have a shared trust) die or become incapacitated. Your successor trustee (or your initial trustee of an irrevocable trust) should be someone you trust to make smart decisions and follow your wishes. Before you list someone as a trustee, speak with them and ensure that they want to serve as trustee.
If you have children, you will want to name a trustee who can manage the trust assets in a way that ensures your children's needs are met until they reach the age when they receive their share of the trust. If your trust does not name a trustee to manage property for your children, a court will appoint someone to manage the property.
The trustee who manages assets for your children does not need to be the same person as their guardian. The guardian is the person you name in your will who will have legal custody of your children after your death.
You also should name at least one additional successor trustee who can manage the trust if your first successor trustee dies or is incapacitated. Some people choose professional trustees, such as banks, to be a successor trustee. Before you do this, contact the professional trustee to see if they will serve as trustee for your trust and how much they charge.
4. Decide what property you want the trust to own
Make a list of all your assets, including personal property, real estate, and financial accounts. Collect necessary paperwork that shows the ownership for each asset, such as titles, deeds, and stock certificates. You will need these documents when it is time to transfer ownership to the trust.
Most assets can be placed in a trust without issues, but some assets may need to remain outside the trust.
5. Obtain and complete a living trust form document
If you create your own trust, you will need to make sure that it complies with your state's laws. A trust document is also known as a trust agreement or trust instrument in some states.
When creating your living trust document, make sure it states whether your trust is revocable or irrevocable. In many states, if you do not expressly state that your trust is revocable, it will be considered irrevocable.
Your revocable living trust document should say what happens if you, or both you and your spouse, become incapacitated. It should explain how incapacity is determined (for example, the opinion of one or more physicians) and that your successor trustee can manage the trust and use trust assets for your care.
6. Sign the trust document
After you complete your form, you must sign it according to your state's laws to ensure it is a valid trust. Many states require a notary public to sign the trust document, but some states only require witnesses to sign. Even if your state does not require a notary's signature, it is a good idea to have your trust notarized.
7. Fund the trust
Your trust is not complete until you transfer ownership of your assets to the trust. This process is called funding the trust.
Documents showing ownership of assets, like certificates of title, stock certificates, and deeds will need to be changed or reissued in the trust's name. You will need to contact each financial institution or your financial advisor to learn how to transfer each asset's ownership to your trust.
Another helpful tool for funding a trust is a pour-over will. A pour-over will is a last will and testament that designates your trust as the beneficiary of your will. The pour-over will should not be your primary method for funding your trust. It is a safeguard that allows assets to end up in the trust if you forgot to transfer them when you were living.
8. Place your trust document in a safe place
Your trust will do you no good when you die or become incapacitated if no one knows where the trust document is. A secure place in your home usually is a good storage place. You can tell your successor trustee where the document is so they can access it if necessary. Avoid safe deposit boxes and other places that will be difficult for your successor trustee to access.
If you have an irrevocable trust, you will need to give the trust document to your trustee so they can begin managing the trust.
