“Avoiding probate usually is the main appeal for living trusts. Trusts also can provide a gentler transition, if the grantor becomes incapacitated.”
Any trust created while the person, known as the “grantor,” is living, is known as a “living trust.” However, the term is also used interchangeably with “revocable trusts,” which can be changed according to the grantor’s wishes. During the lifetime of the grantor, as explained in the recent article “Control of Assets a Key Issue in Deciding on a Trust” from FED Week, that person can be the trustee as well as the beneficiary. Control is retained over the trust and the assets it contains.
Trusts are used in estate plans as a way to avoid probate. Equally importantly, they can provide for an easier transition if the grantor becomes incapacitated. The co-trustee or successor trustee steps in to manage assets, and the process is relatively seamless. The family, in most cases, will not have to apply for conservatorship, an expensive and sometimes unnerving process. Within the privacy afforded a trust, the control and management of assets is far less stressful, assuming that the trust has been funded and all assets have been placed properly within the trust beforehand.
Naming a successor trustee is very important when the grantor can no longer manage the Trust and Trust Asset. The grantor may remain in control even through the successor trust. Adding a co-trustee rather than a successor may also be an option. A successor trustee requires the grantor, if still living, to formally resign and allow the successor trustee to take control of the trust and its assets when a co-trustee is already on the job as the grantor’s partner.
If a co-trustee is named, he or she is in control already, if the grantor becomes incapacitated.
Trusts fall into two basic categories:
Irrevocable Trusts—A permanent arrangement in which assets going into the trust in the sole control of the trustee. Assigning control to a trustee other than yourself comes with benefits: the assets within the trust may not be tapped by creditors such as Medicaid or a nursing home. They are not considered part of the estate. Irrevocable trusts are generally used to protect loved ones, who are named as beneficiaries.
Revocable Trusts—The grantor retains control over trust assets in this type of trust. The grantor may collect investment income from assets in the trust. If the grantor decides to have the assets back in his or her personal accounts, they can be reclaimed into his or her own name.
The revocable trust protects the grantor against incompetency, as the successor trustee or co-trustee can take over management of trust assets and assets pass to designated recipients without having to go through probate.
Determining which of these trusts is best for your family depends on many different factors. Speak with an experienced estate planning attorney to learn how trusts might work within your unique estate plan.
Reference: FED Week (Jan. 21, 2021) “Control of Assets a Key Issue in Deciding on a Trust”