Living Trusts
Definitions
Grantor - person creating the living trust
Trustee - person managing the living trust's assets
Successor Trustee - backup if the initial trustee is incapacitated, has resigned or has passed
Beneficiary - person benefitting from the living trust - initially this person is the grantor
The person creating the living trust is called the
grantor. Married couples and common-law couples can be co-grantors. Only a grantor can amend language in the living trust or revoke the living trust. The grantor is the initial beneficiary of the living trust. Assets are not distributed from the living trust until the last grantor has passed.
Trustees manage assets in the living trust in the best interests of the beneficiary(s). Actions include depositing/withdrawing money at financial institutions, purchasing vehicles, selling a property, etc. The grantor typically lists him/herself as the initial trustee.
Successor trustees manage the assets during times the initial trustee(s) is unable to act. The beneficiary(s) holds the successor trustee accountable for their actions. If a successor trustee is acting reckless or negligent, the successor trustee can be taken to court and held liable for actions.
After the grantor passes, the successor trustee acts like an executor of the estate. Tasks include creating an inventory of assets and liabilities, notifying beneficiaries, settling debts with the grantor's creditors, filing and paying taxes and, at the end, distributing the estate to the beneficiaries.
The successor trustee may be required to make decisions regarding early distribution requests by beneficiaries if assets are being held in the living trust. Generally, requests can be made for health, education, maintenance and support needs. The successor trustee does his or her best to determine what the grantor's decision would have been and acts accordingly.
Successor trustees do not need to be financial savvy - they can continue working with the grantor's financial advisors and will not be held liable if the stock market goes down (unless there are unusual circumstances or reckless actions n a judge's mind). Successor trustees act more like bookkeepers - tracking all transactions and events associated with the living trust. Most living trusts have provisions allowing a professional bookkeeper or accountant to be hired by the successor trustee if help is needed.
Picking successor trustees can be difficult if one does not have family or friends they believe can handle the various responsibilities. An option is a corporate trustee, a professional service that handles the duties of the successor trustee. Typically, nothing is paid upfront and they are compensated annually by a percentage of the estate. The biggest benefit of a good corporate trustee is they are experienced in most situations that arise in transitioning an estate.
An attorney can be very helpful in choosing your successor trustees. Next to guardians for minor children, this could be the most important decision in your estate plan and where the most problems can occur if the wrong choices are made.
Living Trusts
Living trusts can fulfill many uses, which many people are unaware of - which is an advantage of using an attorney instead of using online forms. Common uses include:
Living Trusts
The only two common perceived drawbacks to living trusts are:
- Their upfront costs to create them depending on who prepares your living trust
- The funding/maintenance of the trust - which means the transferring of assets into the living trust, which is often the most important and most time-consuming step.
Living Trusts
A living trust can handle a number of tasks. However, there are also several misconceptions about revocable living trusts which are worth mentioning immediately:
- Living trusts do not reduce taxes - there is no Texas inheritance / estate tax but there is a federal estate tax. A living trust can help married couples each get an exemption instead of "sharing" an exemption. A living trust does not help a single person tax-wise.
- Living trusts do not help someone qualify for public assistance benefits, such as Medicaid
- Living trusts cannot be contested. A living trust may have clauses to discourage someone from contesting but they can be contested for a variety of reasons.
- Living trusts do not help one avoid creditors. Debts must be settled before the estate is distributed to beneficiaries.
Over To A Living Trust
Signing living trust documents does not automatically transfer all your assets in your living trust. One document in the living trust can transfer all personal non-titled property, such as furniture, jewelry, artwork, silverware, etc - your typical department store goods that do not have a title declaring ownership.
Assets such as bank accounts, taxable investments, real estate and vehicles all have some sort of title, which would need changing to reflect the living trust as the new owner. This requires a trip to bank and other institutions to make these title changes.
The attorney preparing your living trust should be able to prepare a new deed to transfer real estate in Texas into the living trust. Real estate outside Texas can be put in your Texas living trust but it may be more convenient and inexpensive to have someone in that state / county prepare the new deed.
Learn more about
funding a living trust.
Consult with an attorney to determine if a living trust, testamentary trust and/or last will and testament fulfills your estate planning needs.
