What is a Living Trust?
It is not enough to know what benefits a trust provides. It is important to understand that a trust is a separate entity. Further, there are three key parties to a trust whose roles must be understood.
A trust is a relationship of three people, a trustor or creator who transfers assets into the trust, a trustee who manages the assets of the trust, and a beneficiary who gets things from the trust.
Some but not all trusts are revocable by the trustor. Revocable means that the trustor can take back the assets that he or she previously transferred to the trust. Typically, when a trust is revocable, it is also amendable, which means that the trustor can change the terms of the trust, for example the trustees and the beneficiaries.
When the trustor is alive, and when he or she has chosen a revocable trust, he or she will be the beneficiary of the trust, meaning that assets can be spent on the needs and on the wants of that trustor.
A trust is a living trust if it is separate from the trustor’s Will. It is designed to hold the assets of the trustor. But if the trustor has failed to transfer assets to the trust during his or her life, then his or her pour-over-will says that those assets (unless they are in joint tenancy or unless they have a beneficiary) will go into the trust at the trustor’s death.
Assets that pass under the pour-over-will are subject to a process called probate, which will be discussed in a subsequent article. For now it is important to remember that the revocable living trust avoids probate only if it is funded, ie only if the assets of the trustor are re-titled into the trust during the trustor’s life or if the trust is designated as the beneficiary of such assets as IRAs, retirement plans, annuities and life insurance.
And Remember You CAN’T Take It With You….