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Making Sense Out of Dollars

Trust Me

Joel Lerner, Columnist
Posted 5/21/21

Part 4 of 11

How Do You Create A Revocable Living Trust?

In every trust document there are three principles:

1. The trustor, or grantor, is the person or persons who created the trust …

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Making Sense Out of Dollars

Trust Me

Posted

Part 4 of 11

How Do You Create A Revocable Living Trust?

In every trust document there are three principles:

1. The trustor, or grantor, is the person or persons who created the trust and transferred the assets into it.

2. The trustee is the person or persons charged with the task of managing the assets in the trust. He or she makes all the financial and business decisions concerning the trust assets. Trustees have the right to buy, sell, trade, exchange, mortgage, and encumber. In fact, trustees can do virtually any­thing with trust assets except use them for their own benefit.

3. The beneficiary is the person whose only role is to enjoy the assets.

A living trust is created to be effective during the lifetime of the one who creates the trust. It is revocable if the creator states in the trust agreement that he or she has the right during his or her lifetime to terminate (revoke) or change the conditions of the trust at any time and without the permission of anyone else. A living trust may be irrevocable if the creator does not reserve the right to revoke the trust.

When creating the living trust, you must realize that you are required to switch the titles of everything you are placing in the trust from your name to the name of the trust.

When you create your trust, you can lawfully become (in most states) all three parties: the trustor, the trustee, and the beneficiary. Under this arrangement, you can act as your own trustee, giving yourself control over your estate while you are alive. You then can appoint a successor trustee if you should become incapacitated or should die. Because the trust is revocable, it can be changed at any time you wish.

Since Revocable Living Trusts are so flexible, why aren’t all trusts revocable? Because the down side to a revocable trust is that assets funded into the trust will still be considered your own personal assets for creditor and estate tax purposes.

This means that a revocable trust offers no creditor protection if you are sued, all of the trust assets will be considered yours for Medicaid planning purposes, and all assets held in the name of the trust at the time of your death will be subject to both state estate taxes and federal estate taxes and state inheritance taxes.

So why should you use a Revocable Living Trust as part of your estate plan? For three important reasons:

1. To plan for mental disability - Assets held in the name of a Revocable Living Trust at the time a person becomes mentally incapacitated can be managed by their Disability Trustee instead of by a court-supervised guardian or conservator.

2. To avoid probate - Assets held in the name of a Revocable Living Trust at the time of a person’s death will pass directly to the beneficiaries named in the trust agreement and outside of the probate process.

3. To protect the privacy of your property and beneficiaries after you die - By avoiding probate with a Revocable Living Trust, your trust agreement will remain a private document and avoid becoming a public record for all the world to see and read. This will keep the details about your assets and whom you have decided to leave your estate to a private family matter. Contrast this with a Last Will and Testament that has been admitted to probate - it becomes a public court record that anyone can see and read.

THOUGHT OF THE WEEK

Freedom is the right to be wrong, not the right to do wrong.

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