A Matter of Trusts

By: Jonathan D. Pond | Source: AARP.org | June 17, 2009

What exactly is a revocable living trust? –Lori, Pennsylvania

The term "living trust" is generally used to describe a trust which you can create during your lifetime, and which you can revoke or amend whenever you wish to do so. The person who creates the trust is the “settler” or “trustor.” The person who holds the property for another's benefit is the “trustee.” The person who is benefited by the trust is the “beneficiary.” A “testamentary” trust, as opposed to a “living” trust, is created by a will and only comes into force upon the death of the person who wrote the will. A revocable living trust can be changed or terminated any time during your lifetime.

An "irrevocable" living trust is permanent and unchangeable and therefore is used only in very special circumstances.

A living trust holds property that you have transferred to it during your lifetime and has a trustee who may be the same person for whom the trust was created. While you are living, the trustee is responsible for managing the property as you direct for your benefit. Upon your death, the trustee is generally directed either to distribute the trust property to your beneficiaries or to continue to hold it and manage it for the benefit of your beneficiaries.

Like a will, a living trust can provide for the distribution of property upon your death. Unlike a will, it can also provide you a vehicle for managing your property during your lifetime and can authorize the trustee to manage the property and use it for your (and your family’s) benefit if you should become incapacitated.

Since you asked about living trusts, I presume you are considering one. Living trusts can provide a variety of estate-planning advantages, such as avoiding probate and keeping your financial matters private. Residents of states where the probate process is particularly burdensome may prefer living trusts. Living trusts are a hot product, and many lawyers and financial institutions have been aggressively promoting them, leading people to believe that living trusts are the answer to every problem. This is not necessarily the case. 

Living trusts do not save income or estate taxes, although many people who have been sold them think they do. A living trust also does not mean you don’t need  a will. While some can benefit from living trust arrangements, others will find them to be a waste of time and money.

So how do you determine if a living trust makes sense for you? Don't rely solely on a lawyer who advertises or gives seminars on living trusts; it's obvious what these people will tell you. Instead, speak with a lawyer who is experienced in estate planning and who can give you an objective evaluation of whether or not a living trust is right for you.

One situation where a living trust is usually essential is if you own real estate or business interests in more than one state. Absent a living trust, your survivors may be confronted with probate proceedings in two or more states.

I wish to add an addendum to my trust. Can I do this without incurring a fee? –John, California

You can add an addendum to your trust on your own, but I wouldn’t advise it. It shouldn’t cost too much to have a lawyer review and approve your change. Then you can be confident that your addendum conforms to the law, so that it will accomplish your intentions.

Trusts are generally easier to alter than wills and require fewer formalities, though you should get changes notarized if they involve real estate. You modify a trust through a procedure called “amendment.” You amend a trust in a written document called an “amendment to the trust,” in which you explain the changes, specify the additions or deletions, and sign and date the document.

Typical reasons why a trust may be amended are to change or add beneficiaries, change the disposition of assets in the trust, or change trustees. You should not detach a page from the trust document; instead, retype the page to include the new information, and put it back in. Doing otherwise could invite a legal challenge or other serious problems.

Even if you don’t need to amend your trust or change your other estate-planning documents, you should ask your attorney to review them periodically—at least every five years—to make sure they’re up to date and conform to current estate and tax regulations.

So how do you determine if a living trust makes sense for you? Don't rely solely on a lawyer who advertises or gives seminars on living trusts; it's obvious what these people will tell you. Instead, speak with a lawyer who is experienced in estate planning and who can give you an objective evaluation of whether or not a living trust is right for you. One situation where a living trust is usually essential is if you own real estate or business interests in more than one state. Absent a living trust, your survivors may be confronted with probate proceedings in two or more states.

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