Attorney Thomas B. Burton discusses Revocable Living Trusts or "Living Trusts" and explains many of the most common terms you encounter when dealing with Revocable Living Trust. Inside this video, Attorney Burton addresses many frequently asked questions about trusts, including all of the following:
1. What is a Trustor, Settlor, or Grantor?
2. What is the Trustee and what do they do?
3. What assets should I place in my trust?
4. How does the Trust help avoid probate?
5. What is a Pour-Over Will and why do I need it?
6. How does the Trust distribute my assets after death?
This video is a good overview of the trust planning process and a great video to watch before you meet with the estate planning attorney of your choice, in order to be more educated about the trust planning process and to enable you to understand some of the terms your lawyer may use with you at this meeting. As an Attorney myself, I understand that sometimes we lawyers use words from the trust and legal world with which we are familiar, but which are very obscure to regular folks. Due to our years of legal training, we sometimes forget to define these terms before using them with the public or with our clients, so I wanted to make this video as an educational tool to help everyone understand these terms better. When making this video I even had to force myself to think about the most common terms I use at my estate planning design meetings, in order to come up with this list of terms that I think you will encounter most frequently. I decided to use a legal pad to write out a few terms and try to lay it out in a visual manner (as I often learn best with visual aids). If this video was helpful to you, let me know in the comments below and consider liking and or subscribing to my channel to help others see this video as well.
Want to know what type of estate planning documents are best for your situation? Download a free copy of my easy estate planning guide.
Obtain Your Free Will vs. Trust Estate Planning Guide here.
Hello welcome.
I'm Attorney Thomas Burton. I'm an estate planning attorney, licensed in Wisconsin. And today I want to talk about what is a living trust.
So specifically I wanted to create a little bit longer video walking you through exactly what a living trust is and what it does. So let's start. First with what exactly is a living trust? Now, you're going to hear these terms often - living trust and revocable living trust and they mean the same thing. It's simply a revocable living trust, is a trust you create during your lifetime, that's where we get the living part, meaning it was created during your life and revocable means it is full revocable or changeable during your life. The reason most people, a lot of people want to make a revocable trust, so that it's flexible. Just like a will, you can create a will and then create another will that changes the first will. With the trust, it is even more flexible because you retain the power to revoke or change the trust as long as you are alive, so that's where we get that name. when you hear living trust or revocable living trust, it's referring to the same type of trust, which is generally a trust we set up to manage your assets during life and avoid probate upon death.
But first, what is this trust? Basically, it's a contract you create with yourself, setting up a trust to manage your assets now and to continue after your death, if something should ever happen to you.
I know this concept can be a little bit confusing. Sometimes with my clients, I say, think about a corporation. When set up Walmart, Sam Walton died a few years ago. But Walmart continues to this day, in fact is even bigger than when he died. So setting up a corporation involves setting up an entity that has in theory, an unlimited life span. The same thing with the trust, if you set up a trust, it can outlive you meaning it can continue past your death, to carry out your wishes. Now, a will only takes effect when you die, but similar to a corporation if you set up a trust now, it springs into life on the day you created it. Generally, this is the date you signed the trust, is the date, you create the trust and it comes into being. So when I joke with my clients, I talk about there’s your life before the trust and your life after the trust. So once you sign your trust, you have one and then you can start putting assets into the trust. But let's define a term upfront, the person who creates the trust is called these three things – Trustor/Settlor/Grantor. So any of those three may be used in your trust, depending on your state and what lawyer drafted it but they all just mean me, let’s say, I am creating the trust, the person who created the trust. It may say in the beginning your name, Trustor/Settlor/Grantor of the trust. That means you're the creator, okay? So you're the person setting it up, writing the rules for the trust and then putting the assets into the trust.
Now the second key term to understand is the person who administers the trust after you're gone, excuse me, administers the trust now and after you are gone and we call this person the trustee. And there will be generally at least two trustees - the person who administers the trust as soon as you sign and set it up during your life and then the person who administers the trust after your death which we call the successor trustee. So for a married couple, often, the married couple will both be co-trustees, during their life and then if one passes away, the remaining spouse will serve as trustee and if the second spouse passes, they name a successor trustee after a child or a relative. If you're single, just remove the spouse and think I'm the trustee during my life and then I have a successor after my death. Now the upside to having a trust is it can protect you not only during life but also if you're ever incapacitated. The successor trustee, let's say you are a single individual and you're in fine health now, but for some reason you have a medical incident, you go into a coma. Your trust document can include language allowing your successor trustee to act for you in the event of incapacity. This is a great often overlooked aspect of trusts. They can help provide incapacity protection and the need for court-ordered guardianship. So keep in mind generally you will be the primary trustee of your own revocable living trust and then you name a successor after your death. And the successor is similar to naming an executor for your will which would administer your estate after you are gone. You need to name someone other than yourself to take over in the event, you're ultimately pass away. So when you hear the word trustee with a revocable living trust, just keep in mind, most often you're going to be that initial trustee and then you name a successor to take over after you're gone or after your surviving spouse depending if you're made and how you want to set it up that way. One other nice advantage of revocable living trust is as you get older and if you become concerned about managing your affairs on your own, if you have your assets already in the trust, you can simply execute a document naming that successor co-trustee to act with you as co-trustee, right now during your lifetime. So when I have clients who get older and they want help with paying the bills, the taxes managing the property., let's say in your 80s or 90s, and you have that successor named in the trust and let’s say, it's your oldest child, you can just execute a document and saying my oldest child Mary is now co-trustee along with me and as long as you have your assets inside the trust, she can start helping you manage them and the banks or financial institutions really like this method because they're familiar with the law of trust because trusts have been along such a long time. In fact, they go back to merry old England, where the trust law originates. So let's cover the third big area of the trust, regarding if you created as the settlor/grantor time and then you name your trustee to carry out your wishes after your death, what do we want this trust to do right now? So in general if you're creating a revocable living trust, we're going to use it as what we call a will substitute meaning when I create a plan at my office, I want to help you avoid probate and all your assets and not need to go through a time consuming and expensive probate action because in general a trust cost more to set up now, but the trade-off is avoiding probate and saving Probate Court cost, attorney’s fees and the time, 6 months to two years after you're gone. So here's in general what we want to put into the trust, we are going to put any real estate you own into the trust and we're going to use a deed to retitle the real estate into your trust. Okay, there we go, then bank accounts. We want to generally retitle the bank accounts into the name of the trust or depending on your age if you're younger, you could make them transfer on death but discuss it with your attorney. But the best is to retitle your bank accounts into the name of the trust, again, so if your successor trustee needs to act with you, they can do it in the event of your incapacity and then other assets like stocks bonds, here we go, we want to retitle them which is easy to do. It is change the name on stock or Bond account from your name John Smith individual to The John Smith living trust under agreement dated whatever date you sign it. And finally we have a pour-over will here and you'll hear this term, what’s a pour-over will, it's a regular will but it's a short version and it's going to be designed to work hand in glove with your trust to say whatever assets I own, upon my death, if I forgot to put it into the trust, I want to pour it over into the trust now. So here's an example, I often give to clients because if you work with my office, we want to get all the real estate you own and the date we put your trusts together into the trust and I do that as part of my planning. I have you give me the deeds for what you own and we put them all in on the same date we sign the trust, but sometimes people inherit a piece of real estate later. Let's say the family cabin up north and the husband inherits a 1/4th interest in the cabin. Sometime, in his late eighties and he forgets that his uncle passed and left him a quarter interest in that cabin and now that is in his name, but he didn't get it into his trust. Now, it's easy to get it into the trust once you have a form, you just talk to your lawyer and have a quick claim deed prepared and you put it into the trust but let’s say he forgot or he was almost on his deathbed, the uncle died 30 days later. The person let's say Fred here who created this trust, passes away. Well, this pour-over will would say any asset I own in my individual name here is, I pour it over to my trust upon my death and I wanted to pass according to the terms of my trust. Okay? For the pour-over will, I explained it as a way to think about an insurance policy built into your estate plan that make sure all the assets are flowing through the revocable living trust because if we use this method, as you can see here, we want everything to flow through the trust that becomes our primary vehicle, think of it like a funnel, all the assets pour in and then they're going to come out the bottom according to the terms we put in the trust. I will use the example of the married couple and if you're not married, just skip the middle part, but basically upon the death of the first spouse if we have all the asset in the trust, the assets continue, in the revocable living trust, for the surviving spouse. So there's no need for probate action at the death of the first spouse. They just continue through the trust and by probate action, I mean a court-ordered probate where you'd have to take the will and say this half of the spouse’s assets, we transfer, it can all continue to do the trust with no probate. Now upon the death of the surviving spouse or if you are single and don’t have a spouse, then just proceed to this. This is where the trust takes over and distributes the asset and they can go to your heirs’, children, charity, whoever you wish. So if you have children, often, this is where it says how the assets get divided and distributed and it can include what will happen with your personal property as well like those items that have sentimental value, you know such as the Chinaware or the antique table or things like that and you can also name your own heirs. Let's say you don't have children or relatives you want to name it to, you can choose anyone you wish or to charity, you can dictate the ultimate distribution pattern through the trust. Now what I like about using trust is we can also build in all sorts of protections for what should happen if one child is gone, let’s say one of your children, predeceases you but you have grandchildren and you would like their share to go to those grandchildren, which is a very common wish but we can easily do this with in the trust. And what I love in the trust, I set up, we can also set up protections for those grandkids because if there are minor, they cannot inherit property under the law, if they are under age 18 but using a trust, we can protect them if they're minor but we can also even protect them a little longer. Let's say age 21, 22 or 25 and we can say in that case, I want the grandkids to get the money in three amounts - on their 21st birthday, on their 23rd birthday and on their 25th birthday and I tell my clients, this is a nice way to sort of protect the younger beneficiaries from themselves, who may not be planning on this large amount of money. Anyway, it gives them three chances to receive the money before it's totally distributed and this can be a very nice method versus what would happen if you had a will or no will at all, where they suddenly a grandchild receives all this money that was meant for your child and they receive it at age 18. This can be a lot of pressure on a young person who's not used to have a significant amount of money at age 18 opting the amount of money it took the grandparent a whole life to accumulate and the grandparent was thinking it would go to their child who's probably middle aged by that point, not age 18. So with a trust plan comprehensive trust plan, we can also build in all these protections for Beneficiaries beyond just that first layer, and that's another important reason that trust plan can be so great. So to review, today I wanted to do a big level overview of what a living trust is or a revocable living trust. So whether you want to use the term living test, revocable living trust, revocable trust, we're talking about the same thing here. And to keep a reminder, the big highlight points are - it's a contract you make, between yourself, you set up an entity, you are named as the settlor/trustor/grand tour and then you create this contract in writing, you name a trustee, which is you initially and then the successor to carry out your wishes after your death and we want to use this trust plan as the ultimate vehicle, one vehicle method for all your assets which includes bank accounts, real estate, stocks, bonds, personal property and any other asset you own, you can have it all flow through the revocable living trust. It can protect it for the first spouse, keep the assets inside, avoid a probate or if there is no spouse and then upon death of the second spouse, the trust can distribute to the heirs of your choosing on your time period and according to your wishes. And the last big benefit I will mention to this is with the trust plan, everything can be kept completely private, there's no need to go through the court process because if you have a will by definition and by law, the will must be presented to the Probate Court upon your death and it becomes public record upon your death meaning anyone can look through it and see exactly who got what. So for many folks who live their life privately, they also like having their estate passed privately upon your death and it's for this reason that you will often see celebrities, if they do proper planning, they have most of their assets passed through the trust. So the paper cannot run down to the courthouse, get a copy of the will and publish it after their death. So I hope today has been helpful to you, this more broad level overview of a revocable living trust, also called a revocable, also called a revocable trust and how revocable living trust act as will substitute to pass your assets upon your death to the heirs of your choosing. I wanted to make little longer form video that walks you through all the steps here, and sort of all the terms that you can watch on your own time. Check out some of my other videos on estate planning. If you want shorter versions of different topics where we focus on other benefits of trusts, how to use them, how to name a trustee, things like that. I hope this has been helpful to you and thank you for watching.
© 2023 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.