Living Revocable Trust
What is a Living Revocable Trust? A trust is document that declares who will manage the property of the trust, how it will be managed and to whom the property will pass upon the death of the creator of the trust. A way to visualize it is to think of it as a legal box that holds your assets. There are rules that say who will manage the trust and who gets the benefit, during your life and after you death.
A living trust is the common name for a certain type of revocable trust. What I mean by that, it you won’t find the name “living trust” in the IRS tax code or the California Probate Code. The term “living trust” is essentially a marketing term to make it easier for non-lawyers to understand what type of trust is meant (i.e., it is living because you create it while alive and it can change and grow during your lifetime). This type of trust is also called a grantor trust and an inter vivos trust.
A trust is created by the Grantor (also called a Settlor or a Trustor). A trust is managed by the Trustee. The third party involved in the trust is the Beneficiary, who is the one who receives the benefit of the trust. During your lifetime, you can be all three. If you get confused on the terms, which is quite common, use this way that I teach my clients. If it ends in “R” it is the Creator of the Trust (Grantor, Settlor, Trustor). The double “EE” of the Trustee is like “employee”, which makes sense because the Trustee does all the work. Finally, the Beneficiary gets the Benefit (i.e., the use of the assets).
“Revocable” means it can be changed or ended during the life of the Settlor. “Inter vivos” merely means the trust came into being during your lifetime, as opposed to after your death.
It is possible to create a trust that only comes into effect after your death. This is called a “Testamentary Trust”, but it does not provide for the benefits of probate avoidance that a Living Trust does.
Basically, the way a trust works is that you create it and then you transfer title to your property into the trust and hold title as the Trustee of the trust. This is called “funding your trust.” Once an asset is in the trust, the Trustee has power to manage it. Most anything you own as an individual, you can own in your trust (except tax-deferred accounts). The property is managed however you say in the trust document. During your life it is used for your benefit because you are the beneficiary. In the case of spouses who create a trust together, both spouses are the beneficiaries and can be Co-Trustees.
When you are unable to act as Trustee either because of incapacity or death, then the Successor Trustees that you have listed in the trust document will have control over the trust. If you are incapacitated, it will be managed for your benefit. Upon your death, the Successor Trustee will pay your debts and then divide and distribute your property according to the terms of the trust.
Living revocable trusts are used to avoid the Court proceedings Conservatorship and Probate, and if married, to fully use both estate tax credits to potentially reduce or eliminate federal estate taxes.
Your living trust is the foundation of your estate plan. It contains your instructions for your own care and the care of your family if you become disabled, as well as for the distribution of your assets upon your death. Your Living Trust allows you to keep your instructions and financial affairs private and ensures that your instructions are carried out efficiently without unnecessary judicial involvement. But it can only accomplish these objectives if you follow the instructions that will be provided after signing for transferring assets to your Living Trust.
You may amend or revoke your Living Trust at any time, but you must do so through a written instrument that complies with all the legal requirements for amendment or revocation. Please do not attempt to modify or revoke any of your documents, especially your Living Trust, Will, or any power of attorney, by writing on them or destroying them. Your attempt may not be legally effective and may result in confusion and litigation among your prospective heirs. Instead, please call us so that we may assist you.