The Living Trust:
A large number of trusts are created in the last
will and testament (a "testamentary trust") of a
deceased person, usually with the objective of
providing for a spouse and heirs. This is a
traditional use of the trust, but its popularity
overlooks the great advantages of a living trust, one
created while the grantor is still alive.
In order to create a trust other than by a will,
the grantor must sign a written "declaration" or
"indenture" which gives specific details of the trust
objectives, operation and income distribution, both
during the grantor's life and afterward. The
declaration is the charter for all the trust purposes,
powers and procedures, and as such, the drafting and
content of this basic document is of the utmost
importance.
Among other things, the trust declaration should
define how the trustee is to invest the property,
provide instructions for payment or accumulation of
income earned by the trust, name and define the rights
and benefits of the beneficiaries, set a duration for
trust existence and distribution of property when it is
to end, and define the relationship of the grantor to
the trust and the trustee.
Decades of federal and state judicial decisions
and U.S. Internal Revenue Service rulings interpreting
trust documents by now have given every phrase special
meaning, therefore the writing of the trust declaration
requires expert advice, assistance and coordination.
This is especially true because to be successful, a
trust must be integrated fully with all other estate
planning and legal arrangements the grantor may make.
A living trust is just what the term suggests; a
trust created while the grantor is alive, also known as
an "inter vivos trust." In contrast to the delayed
establishment of a testamentary trust, a living trust
is created by the grantor to take effect and operate
immediately.
Typically a living trust provides for income for
the beneficiaries during their lives, usually a grantor
husband and his wife, and the disposition of the trust
assets at the grantor's death, customarily to their
heirs. The major benefit in a simple living trust is
that upon the grantor's death, or the later death of
the surviving spouse, trust assets avoid probate
completely, title passing immediately to the named
beneficiaries. There are also the secondary benefits
of lifetime income and asset protection which a trust
affords.
In creating a revocable living trust, a grantor
voluntarily transfers title to his or her assets, but
with a "string" attached. When a trust is "revocable,"
the grantor retains power during his or her lifetime to
vary the trust terms, withdraw assets, or even end the
trust entirely by formal revocation. Such a trust
offers only limited asset protection, especially if the
grantor is also the beneficiary during life, a cozy
arrangement often challenged successfully by creditors.
