- What is a revocable living trust?
A revocable living trust is a written agreement created during your lifetime that designates someone to be responsible for managing your property. It's "revocable" because, as long as you're mentally competent, you can change or dissolve the trust at any time, at your own discretion, for any reason. A living trust becomes irrevocable (cannot be changed) when you die.
A living trust involves three parties: you as the creator, the trustee(s) who agree to manage your assets as directed by the terms of the trust document and the beneficiary or beneficiaries. Most people choose to name themself and their spouse as trustees, because they want to retain full control of their assets while they’re alive – to sell them, exchange them, invest them or whatever else they may choose to do with them.
- What is the difference between a living trust and a will?
Both a living trust and a will contain your inheritance instructions, meaning who gets what, when they get it and how. Because probate records for a will are always open to the public, a trust may be preferred by people concerned with privacy. A living trust will not become part of the public record unless a trustee or a beneficiary demands court approval of accounts.
- What can a living trust do for you?
A living trust can provide you with the peace of mind that comes from knowing that your assets and your heirs will be protected in the event that you unexpectedly become unable to handle your own financial affairs. It eliminates the need for your estate to pass through probate court before it can be passed on to your heirs. Properly worded, a trust can also be used as a substitute for powers of attorney.
Your trust can be written in a way that will pass your assets on to your loved ones or to a qualified charity, like Drexel University, immediately upon your death. Or you can designate that your assets be portioned out over time and in amounts that you specify. Your attorney can help by including tax savings clauses that may help to reduce state and federal estate taxes.
- Who can serve as trustees?
Any mentally competent adult may be named trustee. In most cases, you would name yourself and your spouse as trustees in order to retain full control of the property while you're alive.
If you become too ill or disabled to manage your property, your co-trustee or successor trustee will do this for you. Many people name their children as successor trustees; however, another popular option is to name a professional fiduciary, such as the trust department of a bank, a professional trust company or a private fiduciary. If you have chosen a charity, like Drexel University, as a beneficiary of the trust, you may choose to make the charity a successor trustee.
- Do I have to put a lot of money into a living trust at the start?
This is entirely up to you. A trust can be established with a small amount or with as much as every asset you own. You can even specify in your will that your trust is to be funded only upon your death. There are advantages to each choice, depending on your needs and concerns.
- What should I not put into a living trust?
Some types of accounts should never go into a trust, even if they represent the bulk of your estate. That category includes assets in your retirement accounts, such as your 401(k) plan, IRAs and tax-deferred annuities. Health savings accounts and the less-common medical savings accounts, which allow you to take tax-free withdrawals for medical expenses, should also be excluded from your trust.
- Do I need an attorney to prepare a living trust?
It is important to seek the counsel of a legal professional when creating a trust. Beware of using generic or online living trust kits that claim to be customized documents prepared by an attorney. The cost for setting up a living trust depends upon the attorney used, the complexity and size of the assets and the geographic area.
To learn more about the role of a revocable living trust in estate planning, contact David Toll, JD, senior associate vice president in Drexel's Office of Gift Planning, at 215.895.1882 or giftplanning@drexel.edu.