A living trust, also referred to as a revocable living trust, is a flexible and common estate planning tool. A revocable living trust is a written agreement that appoints a trustee to manage the property owned by the trust. Trusts generally avoid the probate court altogether, which makes them a popular tool in Oregon.
A newly-created trust does not yet own any assets or property, so it must be “funded” by the individuals who created it. The individuals who create a revocable living trust are referred to as the grantors, but may also be called trustors or trustmakers. Funding a trust is the process in which the grantors will change the ownership of their assets to be owned by the trust. The grantors will continue to manage their assets the same as they did before the trust was created. However, they will now be doing so as the current trustees of the trust. All assets stay under your control, and remain held under your social security number.
During your lifetime, you will be both the grantor and trustee of your trust. In the event that you need assistance in managing your financial affairs, the trust will describe who may step in as a successor trustee and under what circumstances that individual will assist you.
Upon your death, the trust will become irrevocable. Once the trust is irrevocable, it generally cannot be modified or cancelled. At that point, your successor trustee will step in and manage the assets held in the trust according to your wishes and provisions of the trust. Those provisions also describe the beneficiaries who will receive or inherit assets and property from your trust upon your death.
A revocable living trust will provide instructions for the distribution of your property upon your death. The successor trustee you appoint in the trust will manage the trust property after your death in a fiduciary capacity. That means that the trustee owes certain duties to the beneficiaries, including the duty of loyalty to the trust beneficiaries. If the trustee violates these duties, they can be held liable for their actions.
Trusts are a very common and efficient estate planning tool. Many people are not interested in having their estate settled by the probate courts under the directions of a will. A well-prepared and maintained trust will bypass the delay and expense of probate. It can also reduce taxes on your estate upon death. The trust will describe who may step in as trustee in case the grantors of the trust become incapacitated. Without a trust, the courts may need to intervene to appoint an individual to manage your property through a conservatorship. A conservatorship is also a costly and burdensome process which can be avoided with a revocable living trust. Avoiding probate can help a modest estate preserve its value for beneficiaries.
Even if you have a revocable living trust you will still need a pour-over will. As its name suggests, a pour-over will can be used to “pour over” into your trust any assets accidentally left out of your trust. This includes assets not properly titled in the name of your trust during your lifetime. Ideally, the pour-over will is not needed. However, this document serves as a safety net for the trust. The terms of the pour-over will state that your trust is your sole beneficiary, and this will allow any accidentally-omitted assets to be distributed through the provisions of your trust once probate is completed.
If a revocable living trust is appropriate for you, you will need a written agreement which sets out your wishes and plans for the management and distribution of your assets. Once the trust agreement is in place, you must transfer your assets to the trust. Your assets will now be owned by the trust and managed by you as trustee of the trust. Real property deeds and other legal documents or paperwork may be necessary to ensure your bank accounts, investment accounts, and other assets are properly transferred to the trust. Assets not formally transferred to the trust might still be subject to probate. You must also have a pour-over will to ensure that any property not properly placed in your trust before death can be transferred to the trust after death.
If there are assets still owned in your individual name rather than your trust upon your death, then your pour-over will can transfer these assets to your trust. If the assets requiring probate include personal property valued under $75,000 and real property valued under $200,000, an Affidavit of Claiming Successor can be filed with the probate court which allows for a shorter probate process. If your assets exceed one or both of those thresholds, a more comprehensive probate process is required.
By itself, a revocable living trust does not avoid income, estate, or gift taxes. However, you can include provisions to effectively minimize or eliminate estate and gift taxes in a revocable living trust or will. Regardless of whether you have a trust-based or will-based estate plan, an Oregon State estate tax return must be filed after you die if your total property exceeds $1 million in value.
The cost of a revocable living trust may depend on how complicated your assets and your estate planning goals are, how many assets must be transferred to the trust, and whether tax planning is necessary. Before you direct an attorney to set up a trust for you, ask for estimates of how much the entire process will cost, how much a will would cost in place of a trust, and how much probate might cost given your assets and circumstances. Some law firms, including Collier Law, offer a complimentary initial consultation to learn about your estate planning goals before estimating the cost to prepare your documents.
A revocable living trust plan should include the trust document, assistance with funding your assets into the trust, a “pour-over” will to serve as a safety net for assets inadvertently omitted from the trust, and a durable power of attorney. It should also include related legal documents, such as an advance directive to address medical decisions and a certification of trust, which summarizes important trust terms and information.
In particular, a revocable living trust can avoid multiple expensive and time-consuming probate proceedings when you own real estate in different states, as well as avoid the publication of the otherwise private financial details of your estate. Often the cost of settling a trust is substantially less than the cost of settling a will.
A revocable trust can avoid the additional cost of a court-monitored conservatorship in the event of your incapacity, and can privately establish those individuals who will assist you with managing assets.
A revocable trust can reduce delays in distributing your property after you die. A Trustee can generally take control of your assets and begin paying pending bills quickly and more efficiently than in a probate. A trust also avoids the demanding timeline and numerous documents required by the probate courts.
Generally, the terms of your revocable living trust and your assets are confidential, with only your named beneficiaries and trustee having access to that information.
A trust can provide for a smooth continuity of management of your property in the event of your incapacity or death.
A well-written trust can deal with asset protection issues including shielding assets for your beneficiaries in the event of lawsuits, creditor issues, or divorce. A well-written trust can even help a beneficiary maintain eligibility for government benefits while also receiving their inheritance. Minors who are set to receive funds from the trust may have the funds managed by an adult you designate until the minor reaches a particular age.
A revocable living trust is more complicated than a will to draft, and asset transfers can take time and can result in additional costs. However, these costs are often offset by avoiding the probate process.
Many people choose family or friends to handle their affairs upon incapacity or death. However, if you appoint a bank or trust company as trustee, you will have fees to pay (though these may take the place of investment advisory fees and other fees you are already paying). As a note, setting up a revocable living trust instead of a will does not eliminate the need for professional services of attorneys and accountants in the future.
Once the trust is established, you must be sure that all assets are properly titled to the trust, as well as assets you acquire in the future. Individuals dealing with the trustee (such as banks and title insurance companies) may want to review certain provisions of the trust to confirm the trustee’s powers and duties. Collier Law walks with clients through this process to help confirm each of these pieces is completed. We also serve as an ongoing resource for our clients as they acquire new assets in the future.
Revocable living trusts often are more complex than wills and require you pay a bit more attention to your assets going forward.
Revocable living trusts can raise a variety of new challenges regarding the ability to borrow against property, title insurance coverage, real estate in other countries, Subchapter-S stock, certain pension distributions, and other issues. Only an attorney who focuses their practice on estate planning should tell you whether a revocable living trust is the best estate planning tool for you, your beneficiaries, and your assets.
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