A Revocable Living Trust is a living legal entity which is capable of holding title to assets. Trust Law has been part of our evolving common law and judicial system since the early 1300’s. The purpose for the creation of a trust has historically been to protect and administer various lands or assets in particular ways for certain purposes during the lifetime of the creator of the trust and after the creator’s lifetime.
Elements of a Trust: A legally binding trust has several distinct elements: a trustor, a trustee, a beneficiary, corpus or assets, the creators must have a legal intent or legal purpose for creating the trust, and they must have the capacity to create a trust.
A Living Trust is created when the testator is alive and will exist even after the testator has passed away. Once the testator has died the subsequent trustee(s) hold legal title and begin to administer the trust assets for the benefit of the beneficiaries of the trust according to the terms of the trust as they were drafted by the original testator. In most cases assets are to be distributed either immediately to the beneficiaries. Quite often, some assets, or the shares or inheritances for certain beneficiaries are to remain in the trust, even after the testator’s death, until the beneficiary reaches a certain age
A Revocable Trust can be terminated by any of the creators of the trust during their lifetimes. Usually the trust remains in existence until after the deaths of the testators, or creators, and then automatically terminates when the assets are full distributed to the final beneficiaries. Once the assets are distributed to the beneficiaries, the trust no longer has corpus (assets), and without that legal element, the trust ceases to exist.
The most common type of Revocable Trust is the Intervivos Trust (the Living Trust), which is created while the testator lives and which holds the testator’s assets during the testator’s lifetime. The Testamentary Trust is a Trust which is written into a will and does not come into being until after the death of the testator. Testamentary Trusts are not functional or funded with the testator’s assets until after the Will goes through probate. For this reason, Testamentary Trusts are not commonly used.
Probate is the court-supervised process where the probate court analyzes and proves the validity of the decedent’s will, appraises the value of the estate, and administers the decedent’s estate for the benefit of the beneficiaries.
The Living Revocable Trust (Intervivos Trust) avoids probate, by transferring title, by operation of law, to the trustee of the trust. Title to all trust assets is passed to the trustee automatically, without any court involvement. The trustee is then obligated, under fiduciary responsibility, to transfer assets or administer assets for the benefit of the trust beneficiaries.
The main advantage of the Revocable Living Trust is that, after the death of the testator, it instantly transfers title of assets to the successor trustee(s) by operation of law, without the intervention of the probate court. A properly drafted Living Trust is also valid throughout the United States of America, in all fifty states (forty-six states and four commonwealths). The Living Trust is also private and does not need to be recorded with the county recorder or with the government. It is valid and binding if it possesses the basic attributes of a trust and has a trustor, trustee, beneficiary, and corpus. A Living Trust also has been endowed with advantages under the tax law. The trust can be especially effective in allowing a married couple to preserve their rights to an individual federal estate and gift tax exemptions.
The Living Trust is not a liability shield. The Trust may afford the creators additional privacy and may make it more difficult for creditors to locate, but assets owned by the creators as trustees of their own trust are still subject to the creators’ creditors.
A Trust can be drafted to limit the control of the trustee over trust assets. However, in the vast majority of cases, where a single individual or a married couple create a Living Revocable Trust, they grant to themselves, as trustees of their own trust, all the powers and authorities than an absolute owner would have over their own assets. As a result, the previous owner of the assets becomes the trustee, trustor and initial beneficiary of the assets with all the same full rights of ownership and enjoyment.
All assets which are not exempt from probate according to the probate code should be transferred into the trust. This includes real estate, bank accounts, certificates of deposit, money market funds, mutual funds, stocks, bonds, limited partnerships, corporations, sole proprietorships, and all personal property, except IRA’s, 401(k)’s, insurance policies, automobiles and qualified retirement plans. IRA’S, for example, do not have to be transferred into the trust because the IRA account already has a named beneficiary. It is recommended, however, that the trust be named as a secondary beneficiary even for assets that already have a primary beneficiary named, such as IRA’S and insurance policies.
Yes! The creator of the trust is able to take any asset out of the trust or put any asset into the trust. For example, if the creator of a trust had opened up a savings account at a bank and had titled the account in the name of the trust, the creator may still, at any future date, during his or her lifetime, completely close that account or take any amount of funds from that trust account and may instead invest them in stock, bonds, or mutual funds which are titled in any other name. The creator of the trust has absolute control to determine how title to assets is held, or whether assets are in or out of the trust.
Absolutely not. The Creator of the trust can and should continue to invest in a variety of different assets to achieve a secure and somewhat diversified portfolio. As the creator continues to buy and sell properties and assets, the trust document itself will never have to be changed. The creator must make sure, however, that title to the new asset is correctly worded so that the asset will be considered trust property, owned by the creator, and would be able to flow through the trust to the ultimate beneficiaries.
The most complete and thorough way to title a trust asset will include the name of the trustee(s), the name of the trust and the date the trust was created. For example, Mr. John Doe and Mrs. Mary Doe, Trustees of the Doe Family Trust, Dated July 4,2003.
An amendment can be made to effectuate a change in a trust document. The amendment may revoke or eliminate an existing term or it may add an additional term. A valid amendment will revoke that portion of the trust that is unwanted or conflicting with the present intent, it will state the additional that the creator wants to make, and lastly, it will reinstate the entire remaining trust document as it stands without any changes. Most amendments need to be signed by all of the creators of a trust and the signatures should also be notarized.