The Living Trust Series Part 1
We all have at least a basic understanding as to the substance and meaning of a will. But the concept of a trust often sounds foreign, complicated, and confusing. This blog post series will attempt to resolve the mystery and explain the most important issues, such as
- What is a Revocable Living Trust?
- What are its advantages?
- How does it work?
- How is it administered and funded?
So without further ado, lets explore the essentials.
A Revocable Living Trust is a legal document often used as an integral component of an individual’s overall estate plan.
Sounds very similar to a will, doesn’t it? That’s is correct. An estate plan can be either will based or trust based, and individuals of all ages and wealth have used both estate planning vehicles for generations.
What does the document do?
By executing the legal document, the person establishes a separate entity and transfers his or her assets into it while he or she is living. These assets may include a home, other real estate, stocks, bonds, securities, and the like. However, some assets, such as retirement plans and stocks of a professional corporation, cannot be transferred.
The individual maintains complete authority and control over the assets while he or she is alive. Hence, the term “living”. The person’s powers over the property remain completely unchanged. The individual has the rights to all of the income earned by the assets, the right to the assets, right to add assets to the entity, and the right to amend, change, or terminate the trust at any time.
Upon the individual’s passing, the trust enters the phase of administration and distribution. At this stage the document has a great deal of similarity to a will in that it sets forth how the property is to be administered and distributed among the person’s beneficiaries (i.e. spouse, children, grandchildren). Unlike a will, however, the property in the Revocable Living Trust does not go through the probate. The process, therefore, avoids the time, expense, and publicity associated with it. After the individual’s death, the property can be distributed to the named beneficiaries outright or it could continue to be held in trust for the named beneficiaries. Because no two families are the same, the terms and the dispositive schemes set forth by the trusts will differ from person to person based upon their specific estate planning needs, goals, and objectives.
To be continued in Part 2: Advantages of the Revocable Trust.