Living Trust Series: The BasicsPosted by William on Apr 6, 2012 in Estate Planning, News | 0 comments
A Living Trust, as it is commonly referred to, is a method for a person to dispose of their assets without subjecting the assets to probate. More technically, this is a Revocable Living Trust. Generally, the donor can revoke the trust and the trust assets revert back to the donor. A donor can set up the trust and transfer assets into the trust (making it a funded revocable trust). These assets avoid probate because they are not considered part of the donor’s estate. The probate process can be both expensive and time consuming.
The donor retains ownership of the trust and all beneficial rights of the assets in the trust, during his or her lifetime. Upon the death of the donor, the revocable living trust typically becomes an irrevocable trust. The assets within the trust are distributed according to the provisions of the trust. Because legal title to the assets are held by the trustee, these assets need not be probated. This usually allows the trustee to buy, sell, or distribute trust assets quicker than under the probate process. However, certain steps must occur before this can happen. If the donor was the original trustee (during the donor’s lifetime), the successor trustee must accept appointment. Poor planning or drafting in the area of successor trustee(s) can have significant implications. If the designated successor trustee does not accept appointment, there must be either an alternate named in the trust or a procedure for filling the vacancy. If not, then the trust will be subject to court supervision and the court has the power to appoint a successor trustee.
Great care should be taken to make sure that the successor trustee is capable and willing to assume their duties under the trust. Adequate provision should be made in the trust itself to avoid a situation where court must get involved. The designated successor trustee(s) should be reviewed periodically to determine if they are still willing and capable.
Once the successor trustee has been named and assumes the role of trustee, there are a number of steps the trustee must take. They must obtain all necessary tax consents or releases and deal with any tax liens on trust property. They must also publish notice of the donor’s death and deal with any claims of the donor’s creditors. They must distribute assets in accordance with the trust provisions.