At its heart, a revocable living trust is an agreement. Revocable means that the agreement is able to be revoked or amended during the Grantor’s life. Living means that the agreement is made while the individual is alive, as opposed to a testamentary trust which is made through a deceased individual’s Will.
The trust agreement has at least 3 parties:
- The Grantor (aka Settlor, aka Trustor, aka Trust Maker): The Grantor is the person who creates the trust agreement. The Grantor is also typically the person who places assets (money, property, real estate) in the trust. In practice: When a husband and wife come in and ask for a trust, both husband and wife are typically Grantors.
- The Trustee: The trustee is the person who actually holds the trust property and manages it. In designing the trust agreement, the Grantor decides who the initial and successor trustees will be. The most important qualification for a trustee is… someone that you trust! In practice: In the trust described above, typically both husband and wife are initial Trustees. Then they would name a child, children, or other trusted individual as successor trustees.
- The Beneficiary: The beneficiary is the person, persons, or organizations that will receive the income and principal from the trust. In practice: In the trust described above, typically the surviving spouse is the first beneficiary, with the children named as beneficiaries upon the death of the surviving spouse. Distribution to the children can be tied to the child’s age, educational pursuits, or other criteria.
Creating the trust can be divided into 2 parts:
- Part One consists of designing the trust agreement so it meets the Grantor’s goals. Some common goals include: avoiding probate, offering remarriage protection, offering creditor protection (spendthrift protection) to beneficiaries, providing for a child or grandchild’s education, making distributions at certain ages (rather than having a child receive a large lump sum at age 18, it is common to customize distributions to that children receive money periodically as they mature. For example: 1/3 at age 21, 1/3 at age 25, and 1/3 at age 30).
- Part Two consists of ensuring that your property is transferred to your trust, a process we call funding the trust. Often you will want to transfer your real estate, vehicles, bank accounts, personal property, etc.. to your trust. Ensuring your trust is fully funded is the best way to ensure your loved ones can avoid the time and expenses of probate court.
The Missouri Bar advises clients that, “You should never sign a revocable living trust document without the advice of a Missouri attorney who practices in this field of law.” When choosing an attorney, ask them how much of their time they spend practicing estate planning. There are only a few of us in the Cape Girardeau area that practice primarily in estate planning.