A trust is an agreement that determines how a person’s property is to be managed and distributed during their lifetime and also upon death. Property held in a revocable living trust at the time of the settlor’s death is not subject to probate administration. Thus, the value of the property is not considered when computing the statutory fee for the personal representative or the estate attorney.
There are two basic steps in creating a revocable living trust. First, an attorney prepares a legal document called a “trust agreement” or a “declaration of trust” or an “indenture of trust” which is signed by the settlor and the trustee. Secondly, the settlor transfers property to the Trustee to be held for the benefit of the beneficiary named in the trust document. A settlor, also known as a grantor or trustor, is the person who creates the trust, and usually the only person who provides funding for the trust. More than one person can be the settlors of a trust, such as when a husband and wife join together to create a family trust. The Trustee is the person who holds title to the trust property and manages it according to the terms of the trust. The settlor often serves as trustee during their lifetime, and another person or a corporate trust company is named to serve as successor trustee after the settlor’s death or if the settlor is unable to continue serving for any reason. The Beneficiary is the person or an entity that will receive the income or principal from the trust. This can be the settlor (and the settlor’s spouse) during their lifetime and the settlor’s children (or anyone else or a charity the settlor chooses to name) after the settlor’s death.
The settlor ordinarily reserves the right in the trust document to amend or revoke the trust at any time during his or her lifetime. This enables the settlor to revise the trust (or even terminate the trust) to take into account any change of circumstances such as marriage, divorce, death, disability or even a “change of mind.” It also gives the settlor the peace of mind that he can “undo” what he has done. Upon the death of the settlor, most revocable living trusts become irrevocable and no changes are then allowed.
A revocable living trust may be considered the principal document in an estate plan, but a will should accompany a revocable living trust. This type of will, referred to as a “pour over” will, names the revocable living trust as the principal beneficiary. Thus, any property which the settlor failed to transfer to the trust during his or her lifetime is added to the trust upon the settlor’s death and distributed to, or held for the benefit of, the beneficiary according to the trust instructions.
In addition to the savings in probate expenses, the avoidance of probate administration has other advantages. The administration of a revocable living trust at the settlor’s death is normally a private matter between the Trustee and the beneficiaries. Unlike probate, there are few public records to reveal the nature or amount of assets or the identity of any beneficiary.
Property can often be distributed to the beneficiaries shortly after the settlor’s death, avoiding much of the delay encountered with probate administration. Also, probate court approval is not necessary to sell an asset in a trust, thus avoiding further delay.