Revocable Living Trusts (also known as Living Trusts) provide many with a flexible and effective form of asset management, making them a popular choice in estate planning. But what exactly makes them so effective?
Unlike a will, it is not necessary to submit a trust to probate. For this reason, trusts are commonly used to avoid probate so that assets can be quickly and efficiently passed on to beneficiaries. Beyond this, trusts offer various benefits that can make them valuable components of an estate plan.
How Does a Revocable Living Trust Work?
What makes a living trust “living” is that its existence is in tandem with yours; it is alive (or legally effective) during your lifetime. As your situation changes, your living trust can change with you.
When you create a revocable living trust, you can name yourself the trustee. Doing so gives you complete control over the trust funds while you are alive and capable. When you become incapacitated or pass away, your successor trustee assumes control of the trust.
Settlor, Trustee, and Beneficiary: Roles in a Trust
Settlor
A settlor, also known as a grantor, is the person who creates and funds a trust. The reasons for creating a trust can vary, but it is common for a settlor to create a living trust to avoid family conflict after their passing or to provide funds to a charitable organization.
A settlor may choose to create a living trust to avoid probate and make the distribution of assets less stressful for the beneficiaries during an emotionally vulnerable time.
Trustee
A trustee is very similar to an executor of a will. They have a fiduciary duty—a legal obligation—to follow the trust’s instructions. Some responsibilities of a trustee, after a settlor’s passing, include notifying certain parties of the settlor’s passing, settling debts of the estate, and distributing assets according to the trust’s instructions.
In a living trust, while you are alive and capable, you can be your own trustee. While in control, the trust operates similarly to a personal financial account. In this period, any trustee (yourself or otherwise) manages the assets according to the settlor’s wishes.
If you become incapacitated, a successor trustee—chosen by the settlor and stipulated in the trust—steps in to continue managing the trust on your behalf, allowing for continuity in asset management and avoiding court intervention.
When you pass, the successor trustee of a living trust assumes the responsibility of carrying out your final wishes and closing your estate. At this point, all revocable trusts become irrevocable, protecting them from any changes the settlor would not be present for.
Beneficiary
A beneficiary is a person or entity that benefits (receives assets specifically left to them by the settlor) from a trust.
There are many reasons why a settlor will leave certain assets to a person and the following list is not exhaustive:
- To financially support a person after the settlor’s death
- To set aside funds for a minor beneficiary until they are old enough to manage them independently
- To donate to a cause or nonprofit as a charitable contribution
When is it Time for Trust Administration?
The process of trust administration begins when all settlors of a trust have passed away. At that point, it becomes the trustee’s sole responsibility to carry out the terms of the trust exactly as intended by the settlor—ensuring that everything is handled properly, fairly, and in accordance with state law.
How Do You Ensure Smooth Trust Administration?
There are many ways to prepare your trust and ensure a smooth transition of your assets to your beneficiaries. The best way to prepare, however, is to contact a trusted legal professional such as our attorneys at Giro & Associates, LLC.
To start the process of creating your living trust, or for assistance with the administration of an estate, call our River Edge, New Jersey, law Office at 201-502-7834, or send us a message on our website with a brief description of your situation, and we will get back to you.