Are You Making Full Use of a Living Trust?

Many people include living trusts in their estate planning for the purpose of avoiding the probate process. That’s a wise goal; probate is the legal machinations by which the state decides how a person’s assets ought to be distributed after a person dies. The process is draining for the deceased’s loved ones, beneficiaries, and executor, both emotionally and where court costs and legal fees are concerned. Careful construction of a living trust while the estate holder is still alive can help to avoid this.

However, living trusts aren’t just a place to park assets for a future sad event. They can be a robust part of not only estate planning, but distribution of funds and properties while a person is still alive. The most important part of making a living trust, however, isn’t just the act of bringing it into existence: The trust must be properly funded and supported in order to operate in the manner for which it was intended. Fully understanding how a trust works and the laws which govern it are the best ways to make full of it.

What’s a Living Trust?

Living trusts are legal entities which exist for the sole purpose of holding an estate. A person’s estate is not just real estate: It’s the contents of bank accounts, retirement programs, valuable personal items, and vehicles. Anyone who owns anything, then, has an estate. When parts or the whole of an estate is in a trust, the contents do not have to pass through the court process in order to reach the named beneficiaries. In most cases, once the assets of the trust are properly distributed, the trust ceases to exist.

Because of this, trusts are much more private than a last will and testament, which must be registered with the legal system upon a person’s death. That action makes the will public, and anyone can quickly access the information.

Another way in which living trusts are different from wills is that they go into effect while the creator of them is still alive. Wills do not become legally enforceable until the person who made them has died. That means a person who has chosen to enter into a living revocable trust still has access to his or her funds and can continue to make spending decisions as normal, assuming that he or she is acting as his or her own trustee.

A trustee the person who oversees the trust and makes decisions regarding how its assets should be managed—whether real estate ought to be bought or sold, which investments might be made, and so on. Those who act as their own trustees must appoint a successor trustee to manage the trust when he or she dies. Failing to appoint or communicate with a reliable successor trustee is a significant way in which people fail to fully take advantage of the structure of a living trust.

Choosing and Updating Successor Trustees

The importance of choosing a responsible successor trustee to attend to your affairs after you die cannot be understated. The trustee is much like a will’s executor. Investing money and time into constructing a strong and practical trust doesn’t make sense if you don’t also take the time to ensure that a person who respects you and your beneficiaries is the one who will oversee the distribution of the very assets you’ve just worked so hard to protect.

Your college roommate might be your favorite drinking buddy, but that doesn’t automatically make him or her an ideal trustee. Is this person going to see to the needs of your surviving spouse, children, and close relatives? Will he or she take care that the amount of money you have designated to your favorite charity will actually transfer to it? These, much more than fear of potentially hurting feelings or entering into a family conflict, should be your guiding questions when selecting a trustee.

It’s also important to remember that one of the most positive aspects of living revocable trusts is that they can be changed. That means you can swap out trustees if the one you have previously selected passes away, experiences a life change, or is in a fractured relationship with you. The important aspect of this, however, is to ensure that, just as when you initially select successor trustees, to be in full and open communication with him or her about it.

Communication With Successor Trustees

It’s rather an unwelcome surprise to be grieving a lost family member and friend and suddenly discover you are expected to act as his or her trustee. Consent is vital and updates to include or exclude spouses, children, and assets are extremely important. For your trustee to do his or her job as well as possible, he or she must be in full possession of the state of the trust.

Some people who have rocky family relationships or who would like an impartial trustee choose a financial institution as a successor. This can work as long as you have confidence in the institution and the employees you have worked with.

Others choose a hybrid approach, and appoint successor trustees who function with the guidance of a financial institution. In this event, it’s best to ensure that the successor and several current institution employees are familiar with one another. In all cases, successor trustees should have access to copies of the trust documentation and at least some familiarity with your assets.

The Importance of Funding the Trust

Some grantors go to the trouble of setting up a trust, then fail to undertake the necessary step of funding it. In order for the trust to do its work of holding assets, it must have assets to hold. This usually means transferring titles of vehicles, changing real estate deeds, and moving ownership of financial accounts. It’s a lot of paperwork and often involves presenting certified copies of the documents founding the trust. Once all is in order, however, funds can pass quickly and easily when the time comes.

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