Sometimes the law can be confusing, but it doesn't have to be. We've compiled some Frequently Asked Questions related to Trust-Based Estate Plans to help you as you navigate your estate planning needs. Don't see your question listed? Please feel free to contact us with your question using our contact form.
Trust-Based Estate Plans FAQs
What is a trust?
There are many types of trusts, but in estate planning a trust is often a legal entity set up to manage assets on your behalf. Depending on the type of trust, the trust agreement will typically contain instructions for your own care and the care of your family if you become disabled, as well as for the distribution of your assets upon your death. A trust can allow you to keep your instructions and financial affairs private and ensures that your instructions are carried out efficiently without unnecessary judicial involvement.
What is a revocable living trust?
A revocable living trust (RLT) is a very flexible type of trust designed to allow the creator to amend or revoke the trust at any time. The trust agreement generally includes instructions for your own care and the care of your family if you become disabled, as well as the distribution of your assets upon your death. As part of a well-designed estate plan, an RLT should allow you and your loved ones to keep your instructions and financial affairs private and ensure that your instructions are carried out efficiently without unnecessary judicial involvement.
What is an irrevocable trust?
An irrevocable trust is a type of trust that cannot be modified or terminated without the permission of the beneficiary. With an irrevocable trust, the person who creates and funds the trust, known as a “grantor”, effectively removes all of his or her rights of ownership to the assets and the trust once they have transferred assets into the trust. The assets will then be controlled or managed by the named trustees. This type of trust can be an effective asset protection and tax planning tool.
What is the difference between a Revocable Living Trust and Irrevocable Trust?
A revocable living trust (RLT) is designed for easy modification if your wishes or your circumstances change. Changes may include adding or removing beneficiaries, changing the scope of trustee powers, or modifying how assets within the trust are managed. In return for an RLT's flexibility, and because as an RLT owner you retain a level of control over trust assets, a RLT is subject to being claimed by creditors or affected by legal action. The assets in a revocable living trust will also be subject to state and federal taxes upon the death of the owner.
An irrevocable trust, on the other hand, leaves less flexibility, but offers some protections that a RLT cannot. Assets will be fully removed from the grantor's ownership once placed into a trust. If you are concerned about taxes and/or protecting assets this is likely the type trust you will want. Except in very rare cases, this type of trust cannot be altered once it is signed but provides a level of protection that the revocable living trust does not.
What is a Certificate of Trust?
A Certificate of Trust is document that can be used instead of providing your full Trust document to financial institutions or other third parties, and will normally confirm the identity of the current and successor Trustees of your Trust, the authority and power that the Trust grants to the Trustees, and the signature required by the Trust.
My bank is asking for a copy of my Revocable Living Trust. I don't want to share all the information in that document – what can I do?
It's very common for financial institutions and others who deal with you in your capacity as Trustee of your RLT to want proof that they are interacting with the true Trustee who has the power to do what you are wanting to do. Most financial institutions will allow you to substitute the Certificate of Trust included in your Estate Plan. This document will provide the information they need without disclosing all the details of your RLT.
I need to make changes to my Revocable Living Trust – what do I need to do?
You may amend or revoke your Revocable Living Trust at any time, but you must do so through a written instrument that complies with all the legal requirements for amendment or revocation. Please do not attempt to modify or revoke any of your documents, especially your Revocable Living Trust, Will, or any power of attorney, by writing on them or destroying them. Your attempt may not be legally effective and may result in confusion and litigation among your prospective heirs. Instead, please call us so that we may assist you.
What do I do once my Trust is set up?
Once your Trust is established, the next step will be to fund the Trust, meaning you will want to transfer the assets that should be held in trust which you currently own and that you acquire in the future into your Trust. This step is vitally important. While transferring the assets to the Trust will typically be your responsibility, if you ever need advice about transferring assets to your Trust, do not hesitate to make an appointment with our office.
Who should I pick as successor trustee?
For most trusts, if you are the one setting up the trust, you are probably also going to be the initial trustee. You will need to select a successor trustee to act when you decide to step down or are no longer able serve in the trustee role. The successor trustee can either be an individual or a financial institution. While there are situations where a corporate trustee is the best option, an individual, will often be the best choice. Choose someone you know who is diligent, detail-oriented, and whom you trust to carry out your clear instructions. Once you have identified potential successor trustee(s), you will want to ensure that he or she is willing to serve in that capacity.
What does a successor trustee do?
A successor trustee (either an individual or institution) serves as a back-up, or replacement, to the original trustee (usually you) when the first trustee passes away or is incapable or unwilling to perform their duties regarding the management of your trust. As successor trustee, he or she will be in charge of managing the assets owned by the trust and ensuring that the assets are managed or distributed according to the terms of the trust.
Should I pick a corporate trustee?
While it's straightforward enough to pick a friend or family member you think will be up to the task, picking a corporate trustee is the best option for some people. Banks and trust companies that focus on trusteeship provide expert management and impartiality that can be helpful. It is important to note that corporate trustees do charge for their services and may have minimum asset requirements.
What is a trust protector and do I need one?
A trust protector is an individual named in a trust to ensure that your estate planning goals and intent are carried out if the law or other circumstances change. A trust protector can be empowered to update your trust without court involvement or mandate to carry out your wishes. This is extremely helpful once you have passed away and cannot make the changes yourself. Although there is no legal requirement that you appoint one, a trust protector is often an excellent addition to an estate plan.
Who should I name to be trust protector?
This role can be carried out in a couple of different ways. You can appoint an individual, often an attorney or other professional, that you trust to step in if the need arises. Often, however, an individual is designated who will appoint the trust protector because it's not always clear what type of changes need to be made, and thus who is most qualified to make the changes. Because the trust protector role does not have ongoing responsibilities, there is not the same time commitment as that of a successor trustee.
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Read More:
What is Estate Planning? An Estate Planning Overview
Estate Planning Basics & Benefits
Wills Versus Trusts: How do I know What I Need?
