So, what is a revocable living trust and how can it help you? A Revocable Living Trust is sometimes referred to as a “Family Trust,” a “Grantor Trust,” or an “Inter Vivos Trust.” “Inter Vivos” is a legal term that means “during your lifetime.”
Think of a big empty drink pitcher. In order to use the pitcher, you have to fill it up with a beverage. You will probably throw some lemons, water and sugar into the pitcher. Once you’ve made your refreshing lemonade, you’ll pour the lemonade from the pitcher into four separate glasses for each of your 4 children to enjoy.
Think of your Family Trust as a big empty pitcher. In order to take advantage of your pitcher – your Trust – we have to fill it up with key ingredients. We put your real estate into your Trust. We put your big ticket assets into your trust pitcher, such as your hard earned savings accounts and your investment accounts. We do this by changing the name of your assets from the savings account of John Doe to the savings account of The John Doe Trust.
As your assets – your lemons, sugar and water – continue to grow, your trust “pitcher” continues to grow as well.
Well, the lemonade sure is tasty, but what is the benefit of using the pitcher? Couldn’t you have just made an individual glass of lemonade for each of your children and saved the pitcher from getting dirty?
Sure, but you would have had to do a lot more work, but making one big pitcher is certainly more efficient than juicing lemons and stirring up four individual glasses of lemonade. It also might create less of a mess to have one big pitcher hold everything.
To put this into legal terms, your trust is a “pitcher” created by a contract, known as your trust agreement. The contract is between 1) you, as the creator of the trust and owner of the ingredients that are going into the trust; and, 2) your Trustee who is bound to distribute the assets in the pitcher in accordance with your trust agreement. Your Trustee may have the ability to direct the pitcher to pour lemonade into certain glasses and not into others, IF that is what your trust agreement requires. Your Trustee may be required to pour lemonade into all four glasses all at once, or upon one of your children reaching a certain age.
Again, you ask, why bother? What difference does it make in the eyes of the law if I have a trust or not?
A Trust allows your estate to avoid probate. What is probate? Probate is the court supervised process of administering an estate. A probate proceeding may be administered with minimal court supervision in what is known as an “independent administration.” A probate proceeding is often commenced where a person dies without a will or where a person dies with a will and has assets over a certain threshold amount. Probate usually takes at least six months before the estate assets are distributed to heirs of the estate due to a period of time during which creditors of the deceased person may come forward and file claims against the estate. Further, most often an attorney is required to handle the probate proceedings, incurring additional costs for legal fees. A probate estate is a public proceeding and the terms of the will are available for anyone to review.
How do I get around the probate problem?
You guessed it- with a Revocable Living Trust! A Revocable Living Trust, if properly funded with your assets, will likely achieve the goal of avoiding probate proceedings after you die. With a Revocable Living Trust, your estate assets and your wishes regarding distributions of your assets remain private among your loved ones. Your estate can be administered quickly and without burdensome timelines. If you do need an attorney to assist your trustee with trust administration, the cost typically is less than probate representation as a result of the elimination of court costs, such as filing fees and the cost of publishing notice. To file a petition for probate and publish notice as required by law in Cook County, the cost is at least $700.00.
A Trust has additional benefits such as tax planning mechanisms to avoid state and federal estate taxes and adding additional protections for your beneficiaries after you die.
You can even create a trust within your trust for specific reasons such as for support of your elderly parents if you die first or for ongoing maintenance and care of your pets upon your death. Your Trust can be a named primary or contingent beneficiary on assets like your life insurance policy, your stock accounts or your Certificates of Deposit (CDs). With careful planning, your trust can be a key mechanism for planning for distribution of your retirement accounts after your death.
You can also add strings to your gifts in a trust. For example, Jon and Jane are concerned about their daughter Angela and her propensity for lavish spending. They want to give their estate to Angela, but they don’t want to risk her spending her inheritance within minutes of receipt. They also want to make sure that Angela’s credit card companies don’t come after the assets to which Angela is entitled from Jon and Jane’s estate. Their trust provides for a testamentary sub-trust for Angela. A testamentary trust “comes alive” upon the death of the person who created the trust. You can have a testamentary trust as a sub-trust in a trust agreement or you can provide for a testamentary trust in your will.
What is the consequence of a testamentary trust or sub-trust? It means that the assets left to Angela stay in the trust “pitcher” and are distributed to Angela at the trustee’s discretion for her health, education, maintenance and support. This ensures that Angela can’t run out and spend all of the trust assets as soon as Jon and Jane pass. Angela’s assets held in trust are further protected from her creditors after Jon and Jane pass.
Your Trust can also get around the possibility of a guardianship of your estate because your trustee is already in possession of your assets. Your Trust will name a successor trustee to act in the event of your incapacity, and your successor trustee will step in and take the reins to handle your assets in trust. For example, if you become incapacitated while your house is under contract, and you do not have a valid power of attorney or a revocable living trust in place, your loved ones are going to have to seek a court decision that names a guardian of your property and that guardian will have to go back to court annually to provide an audited statement of your estate. The guardian will have to retain a lawyer to represent them and may also have to pay for a surety bond.
Talk to an attorney that concentrates in estate planning to see what is right for you and your family. Not everyone needs a Revocable Living Trust, but everyone has to plan for the frightening possibility of our incapacity and the unfortunate certainty of death. It is important that you are in control of who gets to handle your affairs when you can’t and who gets to enjoy your hard earned assets.