Estate planning isn’t a one-size-fits-all process, every family situation is different. What works great for your brother-in-law, may not work for you and your spouse. While having a living trust makes passing wealth on to the next generation easier, their are many ways to accomplish your estate planning goals. A recent article from msn, “Is a Living Trust Really the Best Way to Pass an Inheritance to Your Family?” takes a closer look.
What exactly is a Living Trust?
A living trust is an instrument (i.e., legal agreement) created by an individual during their lifetime to be a legal entity separate from the person who creates it. There are generally three main parties to a living trust, they are the “grantor” (also known as the settlor), the “trustee”, and the “beneficiary”. Trusts are created by estate planning attorneys and tailored to the specific needs of the individual creating them.
Who is the Grantor?
The grantor is the individual that created the trust and is also generally the person that funds the trust with their assets. While this can be a person or an entity, it is usually a person and can be multiple people in the case of a married couple. Generally, the grantor reserves special powers to themselves that none of the other parties to the trust have. For instance, if the living trust is revocable (i.e., can be changed during the grantor’s life), the grantor usually has the power to amend, revoke, or terminate the trust. Many times the grantor also has the power to remove property from the trust, make investment decisions, and add or remove trustees. Regardless of the type of trust, the grantor is the one that creates the trust and is therefore the one that determines the rules that govern the trust.
Who is the Trustee?
The trustee is the individual or entity (usually a bank, investment firm, or trust company) that is in charge of managing the property in the trust according to the rules written by the grantor. Usually, the initial trustee is the grantor and successor trustees only take over managing the property if the grantor is incapacitated or has died. The grantor can appoint one individual to be trustee (sole trustee) or can appoint multiple individuals to be trustees (co-trustees) and the grantor will determine how decisions are made by the trustees and what authority the trustees have over the property in the trust.
A trustee is a fiduciary, meaning that the trustee must act in the best interests of the beneficiaries of the living trust. A trustee must be loyal, impartial, exercise care when managing the assets, disclose accurate information about the assets and their management, and act in good faith when managing the property of the living trust.
Who is the Beneficiary?
The beneficiary of a living trust are the individuals or entities that the trust is created to benefit. The beneficiary is who receives the proceeds from the trust according to the rules created by the grantor. In the case of most living trusts, the initial beneficiary(ies) are the grantor(s). However, living trusts can be created to benefit any number of people or entities, like charities. Trusts can also be created to benefit different beneficiaries at different times, or to have different beneficiaries benefit from different assets within the trust. Generally, the beneficiaries of a living trust are the children of the grantor, but the grantor determines who the beneficiaries are and in what way each beneficiary receives benefits from the trust.
Why Choose a Living Trust?
There are many benefits to using a living trust. Assets placed in a trust pass directly to beneficiaries without going through probate. One of the biggest misconceptions we encounter in our legal practice at Frankel Rubin is how a last will and testament works. Many people think that a will avoids court involvement when the truth is that a will is only valid if submitted to a court. When someone dies, their will is submitted to the local court and reviewed by a judge who determines whether or not the will is valid and if the executor is acceptable to the court. Until the court approves the will and the executor, the estate is in limbo, and nothing can move forward.
Depending on how complicated the estate is and how well the local courts perform, it can a year or more for your property to move through the probate court. If the decedent owned property or other assets in different states, these all have to go through probate in each state.
As stated above, a trust has a trustee and a successor trustee. If the grantor was the trustee, then the successor trustee can step in and manage the trust if the grantor becomes incapacitated or passes away. If assets were placed in a trust, the successor trustee can pay bills and manage the property without waiting for a probate court’s approval. Beneficiaries can be given their inheritance upon the death of the decedent without delays from the probate process.
Additionally, a will becomes a public document through the probate process. Estranged relatives, ex-spouses, creditors and thieves can all view the will. This is why families who have suffered a loss are targets of scammers and recipients of phone calls and direct mail from people seeking to buy the decedent’s home or serve as financial advisors, assuming an inheritance is being received.
A living trust also allows for great flexibility to respond to changes in life. If a family member gets divorced or married, welcomes a new baby, or dies, the trust can be changed easily to adapt to new circumstances. The same is true for financial changes in life. If the grantor needs access to the assets in the trust, they can be taken out, or the trust can be dissolved. You can’t do this with an irrevocable trust.
Meeting with an estate planning attorney is the best way to determine if your circumstances warrant a trust and which is best suited to your goals. There are trusts to protect blended families, structure donations to charity, pass wealth to grandchildren and trusts for disabled individuals. A conversation with an experienced estate planning attorney will answer questions about trusts and provide peace of mind, knowing that you’ve done the right thing for your family.
Book a phone call with one of our experienced estate planning attorneys today. Frankel Rubin’s attorneys are licensed in Missouri and Illinois and our law firm services all of the St. Louis Metropolitan Area. We are especially convenient for estate planning in Clayton, Brentwood, Des Peres, Frontenac, Glendale, Webster Groves, Kirkwood, Ladue, Maplewood, Olivette, Overland, Richmond Heights, Rock Hill, Shrewsbury, Town and Country, Creve Coeur, Affton, Crestwood, Sappington, Sunset Hills, Maryland Heights, University City, Warson Woods, and St. Louis City.
Reference: msn (Dec. 1, 2024) “Is a Living Trust Really the Best Way to Pass an Inheritance to Your Family?”
