Living Trusts

Living Trusts

A trust is a fiduciary arrangement that allows a third party, the trustee, to hold assets on behalf of one or more beneficiaries.

What is a Revocable Living Trust?

The following three roles must be fulfilled for a trust to be valid:

  • Grantor: the person who establishes a trust; also known as the settlor, trustor, or trustmaker
  • Beneficiary: one or more individuals, trusts, or other entities that receive assets from a trust. The beneficiary entitled to the assets from the trust currently is referred to as the current beneficiary, the one who will receive the assets upon the current beneficiary’s passing is called the remainder beneficiary. If a named beneficiary is unable or does not want the trust assets, they will then be distributed to the contingent beneficiary.
  • Trustee: one or more persons or entities named in a trust (or otherwise appointed) to administer trust assets and make distributions per the trust agreement. The first appointed trustee, who in the case of a revocable trust is often the grantor, is called the initial trustee, and those trustees appointed to serve if the initial trustee is unable or unwilling to serve are called the successor trustee.

Requirements for a Valid Trust

  • A settlor, also called a trustmaker, trustor, or grantor
  • Trust property
  • A valid trust purpose
  • A trustee
  • A beneficiary

How Living Trusts Work

  • Created by a settlor during lifetime (with power to modify or revoke)
  • Settlor chooses trustee succession (initial trustee is typically self, spouse, or self and spouse)
  • Settlor names beneficiaries of the trust (self, spouse, descendants, charities, friends, family members)
  • Settlor includes instructions on how assets are to be managed for beneficiaries
  • Settlor executes a trust agreement
  • Settlor funds trust (transfers property to trust)
  • Trustee manages the property as instructed in the agreement and by state law
  • Trust becomes irrevocable at the settlor’s death

Benefits of Revocable Living Trusts

  • Avoid probate
  • Built-in incapacity planning tools
  • Ability to provide long-term consolidation of assets and continuity of management
  • Privacy

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