A revocable living trust can be an efficient way to transfer assets to your beneficiaries. It is revocable and amendable at any time. So as your needs and life situation change, your trust can change with you.

In this section you will learn about:

  • What a revocable living trust is
  • How a revocable living trust can benefit you
  • The importance of naming a successor trustee
  • How a revocable living trust can be an efficient way to transfer assets to your beneficiaries

There are four important parties involved in a trust:

  • A grantor who creates and funds the trust
  • A trustee who manages the trust
  • A successor trustee to take over when the trustee becomes incapacitated, dies, or no longer wants to handle the day-to-day trustee duties
  • Beneficiaries who receive assets from the trust. You may be the primary beneficiary during your lifetime. After death, your directions control how and when beneficiaries receive income or assets through your trust’s terms.

When you set up a living trust, you transfer assets from your name to the trust’s name. This is called “funding the trust.” When you change the titling of your assets from your name to the name of the trust, you still control the assets through your trust’s terms.

If you name yourself as trustee, you can buy, sell, and use assets just as you did prior to establishing the trust. And since it is revocable, you can also amend or revoke the trust at any time.

After you die, assets can either be distributed outright to beneficiaries or stay in your trust until your trust’s terms allow distributions to your beneficiaries. You can transfer assets in installments or set age limits for distributions. This can help protect your assets from spend-thrift heirs or their creditors, keep the assets under professional management, and help provide for your family over generations.

Revocable living trust assets avoid the probate process because those assets are legally owned by a trust, not individually. In contrast to probate, which is a public proceeding, the settlement of your trust is not part of public record so you have greater privacy.

Unlike a will, a living trust can also provide for management of your assets should you become incapacitated. This is accomplished by naming a successor trustee in your document.

A revocable living trust with you as trustee is not considered a separate taxable entity. Therefore, the trust does not require a separate taxpayer identification number; you simply report all income using your Social Security number.

A revocable living trust can be an important part of an overall estate plan and provides several estate planning opportunities, including:

  • Providing for yourself during your lifetime and for continued asset management should you become incapacitated
  • Ensuring that your spouse or partner can be supported by family assets during his or her lifetime, if applicable
  • Specifying the amount, manner, and timing of assets to be distributed to young or financially unsophisticated beneficiaries
  • Providing for a spouse, partner, or dependents with special needs

Your Financial Advisor can provide more details about setting up a revocable living trust. You should work with a qualified local attorney to help you decide whether a revocable trust is appropriate for you and to draft and execute your trust.

Choosing a trustee

One of the most important decisions to make when establishing a trust is deciding who will be the trustee and successor trustee. A trust is only as effective as the trustee who administers and manages it. Many people name themselves as the initial trustee when they create a revocable living trust.

Although you can name yourself trustee and retain control over the trust, its terms, and assets, you should include provisions for a successor trustee to manage the trust if you become incapacitated, die, or resign as trustee. The successor trustee will be the person or entity charged with making sure your trust’s terms are followed. A successor trustee has many responsibilities, including safekeeping assets for you and other beneficiaries – paying bills, establishing an investment strategy, filing tax returns, and making distributions to beneficiaries. Naturally, as your estate grows more complex, so will your trustee’s duties – such as making decisions about discretionary distributions and beneficiaries’ requests for money.

Initially, the title “trustee” may seem like an honor for whomever you name, but you need to ask yourself the following questions:

  • Is the person you have in mind capable of making sound investment decisions, distributing income or principal according to the trust’s terms, making tax decisions, filing tax returns, and keeping accurate records?
  • Does he or she have the time to adequately fulfill a trustee’s duties?
  • Will this person be able to communicate effectively with the beneficiaries?
  • Is it possible that the selection of any specific individual over another could lead to tension or disharmony?
  • Is there a capable successor if an individual trustee predeceases you or becomes unwilling or unable to fulfill the responsibilities?

Often, spouses, family members, or other individuals are named to fill the successor trustee role. However, if the answers to these questions create concerns for you, you may want to consider a corporate trustee as successor or co-trustee. A corporate trustee has a professional staff that deals with managing trusts on a daily basis, assuring the professional management of your assets.

With a corporate trustee, you don’t need to be concerned about an individual predeceasing you — and perhaps creating the need for court intervention to appoint a new trustee. Nor do you have to worry about trust duties being a burden to your spouse, partner, family, or friends. If beneficiaries disagree over finances, having an impartial trustee may be beneficial to maintaining harmony.

You may also consider naming your spouse, partner, a family member, or trusted advisor to be a co-trustee with a corporate trustee. Co-trustees act together in administering the trust according to your directions. The individual selected will be able to have a voice in administering the trust without being burdened by the day-to-day duties. While the individual brings to the table an intimate knowledge of the other beneficiaries and your wishes, the corporate trustee brings the combined expertise of its trust professionals and the experience gained from years in the business. Your trust’s provisions will be implemented without personal or institutional bias, which may help maintain harmony.

The bottom line: Discuss the choice of trustee, successor trustee, or co-trustee with your attorney to determine what is best for your estate plan.

Special note

This concludes the “Basic Planning” section. If your estate is, or has the potential to be, valued in excess of $5,490,000, please continue to the “Advanced Planning” section.