I was at a networking event today, and I was talking with a guy in his twenties — healthy, unmarried, no children, minimal assets and minimal debt. He said he wanted to talk to me about me doing a “revocable living trust” for him. When I asked him why he thought he needed one, he didn’t know. He had heard about them on the radio or read an advertisement for a seminar on revocable living trusts, and he decided that he needed one.
First, “What is a Trust?” A trust is an entity created by a “Grantor” or “Settlor” (the words are synonymous), to hold property for the benefit of beneficiaries. The laws of Trusts are based both upon each individual state’s statutes, and the Common Law. In this blog post, I will be writing based on my experience primarily as a Florida Estate Planning attorney that drafts Wills and Trusts, and the laws may be different in your State. Generally, there are two types of Trusts — Revocable Trusts and Irrevocable Trusts. The term “living” merely indicates that it was created by the Grantor when he was alive, as opposed to a Testamentary Trust, which is created from the Grantor’s Will, upon their death.
The two types of trusts are self-descriptive. When a grantor creates an Irrevocable Trust, he is irrevocably transferring whatever property he is choosing to transfer to the Trust. He has given the property away, and has not retained any rights to revoke the trust or to take back the property. Irrevocable Trusts are often used for gift and estate tax planning, medicaid planning, and asset protection planning. They are also useful in situations in which the Beneficiaries are not ready to receive the property outright, or in which the Grantor might want to protect the assets from a Beneficiary’s creditors. Depending on what the goal is, it is possible for the Grantor to also be Trustee of the Trust, but often he is not. But the key is that it is a permanent transfer of the property to the Trust by the Grantor which can not be revoked.
A Revocable Trust (or Revocable Living Trust) is a Trust that can be revoked or amended by the Grantor at any time for any reason. The Grantor can cancel the Trust entirely, change its terms, and add or remove property to the trust. In most cases, as long as they are healthy and mentally competent, the Grantor is also the Trustee of their own Trust. A Revocable Trust becomes Irrevocable upon the Grantor’s death. Like a Will, it provides how property is disposed of upon the Grantor’s death, and how property should be managed if the Grantor is still alive, but becomes incapacitated.
The sole purpose of a Revocable Trust is to avoid probate upon the Grantor’s death, and to avoid a Guardianship if they are alive and incapacitated. However, in order to successfully avoid probate, all of a Grantor’s assets must be retitled in the name of the Trust. Any asset subject to probate not owned by the Trust would require to be probated. In addition, a Guardianship can be avoided by having a properly drafted and executed Durable Power of Attorney and Health Care Surrogate.
A Revocable Trust will often add complexity and cost to a client’s estate plan, and if they are not properly funded, they do not accomplish probate avoidance anyway. For older clients, a Revocable Living Trust, is a good idea and is worth the extra cost and effort to properly fund and administer it. But for a younger person, a Will, along with properly executed Advanced Directives work just fine.
A final note: There are people out there providing “seminars” on Revocable Trusts, in which their basic theory is that everyone on earth needs one right away, and needs to buy one from the person giving the seminar. Be wary. These presenters are often not attorneys, and are providing fill in the blank documents that are not custom tailored for you, the client. Anyone who claims to know what you need before talking to you as an individual, and wants to sell you the same fill in the blank document that they are selling to a room full of fifty people should be treated with extreme skepticism.