Updated: May 28, 2021
Attorney Thomas B. Burton explains one of the most asked question: "How to Set Up a Living Trust?"
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Welcome back to Estate Planning 101.
Estate Planning 101 is our long-form, Educational Series where I cover various estate planning topics in order to educate and inform the audience, so that they can take charge of their own estate planning.
So today's topic is How to Set Up a Living Trust. Now. I know if you have watched the series before, many of my videos we talked about using a will or a trust, avoiding probate and various topics, but in today's video, I want to focus solely on setting up a living trust and how you actually go about doing that.
So first, let's define our terms here. You may have heard of a trust or a living trust or me, use the word Revocable Living Trust. Now sometimes we abbreviate this but generally, this means the same thing, Revocable Living Trust and the living part comes from, let me write over here, living means you set it up during your life. So it's created during your life versus a trust, we would create, after your death. So there is a way to create a trust under a will and that would be called a Testamentary Trust. But when you hear estate planning attorneys talk about a living trust or a revocable living trust. They're referring to the fact that it's a trust we create during your life while you are living. And the trust is designed to operate during your life and after your death, the trust can continue on. So the trust can manage the assets during your life, then when you die, in general, the trust at this point, becomes what we call Irrevocable, but it continues on to manage your assets after you're gone according to the terms of your trust. Now some trust, this will say 'Distribute my assets out to child number one' or 'child number two', but it might also say, there's another child who has special needs, so hold this funds in, we're going to use SNT - Special Needs Trust for child number three.
However, you want to set it up, but the general idea is that this living trust, we get the word living from the Latin 'Inter Vivos Trust', meaning a trust created during life and you created during your life and it can continue after your death.
So a living trust or a revocable living trust, are often mean the same thing, when referring to this type of trust, we physically create during your life, designed to hold your assets during life and manage them if you are ever incapacitated or after your death inside of the revocable living trust.
So I'm going to drop a document here and label it RLT - Revocable Living Trust, and this is generally how we form the trust. We create the trust in writing, we put the rules of the trust inside of it, what you want to happen during your life and after your death and then you sign it and date it, and I tell my clients on that date that we sign and date your trust plan, the trust brings into life and that date will become the date of your trust. If you see it on your documents, we will refer back to it as let's say, May 1st, 2021, so it will say the 'Smith Living Trust' under agreement dated and sometimes, you'll see this UA which means under agreement dated May 1st, 2021.
So in general, in my practice, this is how we create a trust in writing on paper. Now there is under trust law, a way to create an oral trust, meaning a trust you say to someone. I hand you this marker and you hold it in trust for my son until he reaches age 18. That is recognized under trust law, but I don't recommend it because an oral trust is very hard to prove, because you have nothing in writing. Now if you have very honest people, they could carry out the trust but it's also harder to reflect all of the terms of your trust in an oral manner.
So best practice and what we use most commonly in Wisconsin is we create the trust in writing and that means writing it down in paper. Now in Wisconsin, all that's required to form a trust is that it's signed by the Grantor, the Settlor.
So let me define these terms.
You're gonna see the term Grantor, Settlor, sometimes Trustor, that is all means the person who created the trust. So if you're doing this for your own estate planning, that generally is going to be you.
Now once we set up a trust, it means we're going to create, contribute property to be held in the trust. This can be anything you choose but common examples would be tangible personal property like your clothing, jewelry, items of adornment, furniture my clothing for instance, that's tangible personal property, no title that could go in the trust. Real Estate another common asset. We transfer title funded into the trust, but the idea is, there's something of value in the trust that you - the settlor are putting in.
Now, the second important person is the Trustee of the trust. This is the person who has a fiduciary duty to carry out the purpose of the trust as laid out by the Grantor, Settlor, Trustor, the Creator and the trustee generally, for revocable living trust, will be you during your lifetime or if you're married couple, both of you. And then after your death, you have a successor trustee, someone you choose and I like to name an alternate, just in case something happens to that person, which can be another a child, friend or relative or a trust company.
So to create a trust, basically we have to have the settlor - the creator, we have to have property we're holding in the trust, something of value and we need a trustee who is going to manage the property. As I just said, in the case of a revocable living trust, it's often the creator and the initial trustee are going to be the same person.
So when you're working with me or another attorney and you go to sign your trust document, you're going to sign and date as settlor, and then you're going to sign and date in acceptance as the trustee of your trust. So once it's created you then covenant to follow the rules you've laid out. Now in general the only person who has the ability to revoke or change, this word 'Revocable' essentially means, you can cancel the trust or change it. The only person who has this power during your life is going to be you, the grantor or settlor. You will retain the power inside the document to make any changes you want and that's the key and the great thing about a revocable living trust and why it's so flexible, and works great as what we call a will substitute, to pass everything through the trust instead of passing through public probate court. We can have a private trust administration.
So the settlor retains the power to amend or revoke the trust and what this means is that anytime the rules you created here, if they don't meet with your wishes, you can simply execute an amendment to the trust, stating your new wishes. Common amendments can be changing a trustee or changing a beneficiary who should receive an item or how much of the estate and it can all be done very easily through a revocable living trust. Similar, the amendment is similar to how you create the trust by signing and dating. Best practice in Wisconsin, when available, I recommend you do this in front of a notary public, but it's not even strictly required under the trust code. So if you're in a pinch, you can execute amendment without one but again, at me my office, best practice is to use, do the signature and date in front of a notary public.
So this is the basics of how to set up a living trust in Wisconsin and in today's video or many other states as well, but this is the general process under Wisconsin trust law. We have adapted a version of the uniform trust code, which is a trust code used in the vast majority of states and Wisconsin, but each state, I'm sorry in the United States but each state has, some have their own unique take on the trust laws. So you should always consult with an attorney in your state about setting up a trust there.
But today I wanted to focus on the basic process because when I meet with clients, sometimes I start talking about how we can avoid probate and do different things but there isn't time where we don't get into it, how you actually form this trust and what I try to remind my client is, in your life, there's your life before a trust and after a trust. Once you have this trust signed and dated, then you can manage all, almost all of your property inside the trust. So if you buy or sell a piece of real estate, for example, once you have the Smith living trust dated May 1st, if you sell a house in the trust, you simply buy the new house in the name of the Smith living trust of which you are already the settlor/grantor and trustee. So it becomes relatively simple but most people aren't used to this because a lot of their life, they go through life owning assets in their individual name and once you have a trust, you start to own the assets inside of your trust and hold them as trustee.
So one useful thought/exercise, I tell people sometimes to think about creating a company and how a company can have a perpetual life. Meaning, a company like Walmart, outlived Sam Walton, the founder or Standard Oil, which is now ExxonMobil outlived John Rockefeller. The same thing with the trust, once you create it and write the rules, the trust can outlive you and that's the beauty about how the trust can carry out your wishes, after you're gone as a private administration instead of a public probate court process as with a will or with someone who dies without a will.
So I hope this is helpful to you, in further understanding of how to set up a living trust. If it has been helpful, please consider giving this video a 'Like', so that others can see and benefit from this information as well. Because remember the goal of estate planning 101 is to empower you to take charge of your own Estate Planning and whether you work with our farm or another farm, we firmly believe that kind education is the best way to have informed and educated clients, who understand what we are doing and in turn, receive an estate plan that works great for them and their family.
So thank you for watching and we'll see you next time.
© 2021 Burton Law LLC. All Rights Reserved. Transcript and captions provided for ease of access for the hearing impaired. For questions about this topic, or to suggest a topic for a future blog post, please contact the office.