At eight months pregnant, I eased into a chair at a law firm specializing in estate law, and my husband and I signed and initialed a full set of estate documents.
We’d gotten the car seat, the crib, and the onesies. But doing this — ensuring our child and each other were protected — was one of our highest priorities in those last few weeks before our son was born.
Five years later, we just paid our lawyer another visit to make a few updates to our documents. And having those protections in place continues to bring us immense peace of mind.
Of course, my husband and I wanted to ensure that our son was taken care of and our wishes respected in the unlikely event that both of us died. And we wanted to spare our family the time and financial burden of chasing our assets through probate court.
But we were also able to deal with a situation that a basic will just can’t cover — what would happen to us, our son, and our assets in the event that we were temporarily or permanently incapacitated. And that’s where a living revocable trust comes in.
I am a HUGE proponent of setting up trusts for yourself and your spouse! The benefits are enormous. And trusts are not nearly as complicated as you might think.
So what is a living revocable trust? And is a living revocable trust right for you?
Chelle’s Story
Chelle Huth from Pennsylvania remembers encouraging her friend, Judy, to set up a trust. Judy, facing a terminal cancer diagnosis, wanted a way to ensure her children were cared for and her assets were poised to support her loved ones.
Chelle, who today shares guardianship over those children with her husband, recounts the process of establishing the trust during what was already a difficult time for everyone. “The representatives walked her through exactly what was needed in order to set up the trust,” Chelle says, “and she worked with her attorney who helped her shape the expectations of the trust and turn over all the documentation.”
Judy’s illness eventually claimed her life. But Chelle stresses the emotional benefit of having established a trust: “She had great peace at the end knowing that these things were in place, and I had great peace knowing that we could just focus on taking care of the kids,” Chelle says.
How living revocable trusts work
If you’re like most people, you probably think that trusts are just for the richest of the rich. However, anyone with assets should consider creating a personal trust, which offers many benefits.
The IRS defines a trust as “a legal arrangement which can help you control your assets and possessions. They often can help reduce taxes on your estate and speed up the process of allowing beneficiaries access to those assets.”
To understand how they work, it’s important first to learn the lingo:
- Grantor: The person who sets up the trust; also known as a settlor or trustor. When you set up a trust for yourself, you are the grantor.
- Trustee: The person who has legal power to manage the assets in the trust. The trustee is responsible for safeguarding the trust assets for the grantor or beneficiaries, filing tax returns and more.
- Co-Trustee: One of two or more people who are named trustees in the trust. For example, a spouse may be a co-trustee on your personal trust.
- Beneficiary: A person or entity that receives the benefit of your assets.
Irrevocable vs. Revocable Living Trusts
When setting up a trust, you have a choice between two types — irrevocable and revocable.
Randall W. Sayers, a partner at Hansen Dordell in St. Paul, Minnesota, has decades of experience with trusts as both an attorney and a law school teacher. “Irrevocable trusts are primarily tax-driven and primarily for people with fairly significant estates where they’re trying to accomplish things that require giving assets away in some form,” Sayers says.
One might use an irrevocable trust to donate money to charity or gift money to children. An irrevocable trust can take one of many forms, like a bypass trust, charitable trust or special needs trust.
Revocable trusts allow you, the grantor, to modify or rescind the trust throughout your lifetime. Sayers notes that these types of trusts are primarily focused on the distribution of your assets upon your death. However, revocable trusts — often called living trusts — can also be invaluable if you’re too ill to manage your money during your lifetime.
To establish the trust, you, the grantor, work with an attorney to draw up legal documentation that creates a trust in your name. Name yourself trustee during your lifetime, as you wish to maintain complete control over your assets.
To manage your trust in the event of your or death, appoint a trusted friend or a trust company as your successor trustee. Designate beneficiaries — maybe your children, other loved ones or charitable organizations — to inherit your trust assets after you die.
Is a living revocable right for you?
A living revocable trust offers some valuable benefits:
- Avoiding probate: Since the trust document details how the successor trustee should distribute assets to beneficiaries after the grantor’s death, your heirs can generally bypass probate court.
- Maintaining privacy: Probate court proceedings are a matter of public record. By keeping your estate planning within the confines of a trust, you ensure privacy relating to your financial wishes.
- Protecting you while alive: If you’re unable to manage your affairs due to temporary or permanent disability, your trust clearly establishes how your assets are to be managed and by whom.
- Ensuring the fulfillment of your wishes after your death: The trust will lay out your chosen beneficiaries and a detailed plan for how they will inherit.
Terry Chier, manager of Personal Trust Services at Thrivent Trust Company, says one downside to establishing a trust is the (minimal) upfront cost of creating one and the time spent transferring assets into that trust. But Chier emphasizes the importance of investing that time: “The key is that you transfer the title of your assets into the name of the trust.”
Sayers reiterates the importance of moving assets into the trust to ensure its maximum value and adds that the change is not a taxable event. He recommends including investments, real estate, liquid assets in a bank and your personal property.
And Sayers notes that retirement vehicles — like IRAs and 401(k)s — can’t be placed in trust, though you can update the beneficiary of each of those accounts to be your trust.
Who manages a trust?
Terry Chier, manager of Personal Trust Services at Thrivent Trust Company, says that you can choose an individual to manage a trust after your death. But the responsibilities and learning curve for most people can present a significant burden on a novice trustee.
Another option to consider for managing a trust is a company that focuses on trust administration. Those companies often have:
- Connections to attorneys that can help you create the trust
- Transparency in being subject to regulations
- Detailed reporting that’s available to all trust beneficiaries
- Impartiality in carrying out the grantor’s wishes as written
- Ability to handle familial disputes over the estate, promoting harmony among beneficiaries
No one can predict the future with any certainty. But you can take steps to protect yourself and your loved ones. And creating a trust of your own is a great way to do that.
Have you set up a living revocable trust, or are you considering it? Why?
This article was first published in the June 2019 issue of Thrivent Magazine.
Leave a Reply