Understanding Wills vs. Living Trusts in Estate Planning

Wills and living trusts are pivotal in estate planning, directing the distribution of assets post-mortem. However, a revocable living trust, often simply termed as a living trust or inter vivos trust, stands out by offering enhanced flexibility and functionality, including incapacity planning.

The Roles within a Revocable Living Trust

In a revocable living trust, there are key roles:

• Trustmaker (Grantor or Trustor): The individual who establishes the trust.
• Trustee: The administrator of the trust's assets.
• Beneficiary: The recipient of the trust's assets.

Understanding the nuances of these roles, especially when the trustmaker also serves as the trustee, is crucial. It's advisable to craft these complex legal documents with professional guidance from an estate planning attorney.

Operational Phases of a Living Trust: Active Management and Future Preparations

Managing a Living Trust During Your Lifetime

As the trustmaker, you must transfer assets like real estate, financial accounts, and investments into the trust's name. Despite this transfer, you retain control over these assets as the trustee, managing them for your benefit as long as you are capable.

Legally, you have the power to modify, amend, or revoke the trust entirely while mentally fit. This includes adding or withdrawing assets, making investment decisions, altering beneficiaries and successor trustees, and modifying inheritance conditions.

Constraints and Prohibitions for Trustmakers and Trustees

Despite considerable control, certain actions are prohibited:

• Using the trust to shield assets from creditors.
• Evading taxes on income generated by the trust assets. Such income must be declared on your personal tax return as trusts typically do not require a separate tax identification number.
• Conducting trust-related transactions as an individual rather than in your capacity as the trustee. For example, signing off on actions needs to be done as "John Doe, Trustee of the John Doe Trust" rather than just "John Doe."

The Role of the Living Trust Upon Incapacity or Death

Upon your death or if you become incapacitated, the successor trustee you appointed will take over the management of the trust according to your laid out instructions. This includes potentially managing the trust's assets over an extended period or concluding the trust by distributing its assets to the designated beneficiaries. It's prudent to appoint a backup successor trustee should the primary be unable to fulfill their duties.

Tailoring Your Estate Plan to Your Specific Needs

Creating a living trust involves multiple responsibilities across different roles—creator, trustee, and beneficiary—each carrying distinct powers and duties that extend into the future, addressing scenarios like incapacity or death.

To fully understand these responsibilities and ensure your estate plan aligns with your goals, consider consulting with an estate planning attorney. Contact us today to schedule a consultation and start shaping an estate plan that truly fits your needs.