A revocable living trust is a vital part of many estate plans. The trust contains your dying statement to friends and loved ones, charitable gifts, division of estate assets for family, and who you want to be in charge if you are ever incapacitated.
A trust is one of the most common estate planning tools used today. A revocable living trust takes the place of a last will and testament as the primary legal document in an estate plan. It is a separate legal entity which owns your property and belongings. The trustees of the trust are the persons in charge of it and the assets it holds.
How does a trust work?
A revocable living trust is created when an attorney drafts the legal documents for you, and, you sign them. Much like a Will, the trust describes how you want your assets to be divided when you pass away. An attorney will help you transfer assets into the ownership of the trust during a process commonly referred to as funding your trust. The trust owns the assets and you are in charge of the trust.
When you pass away the trust becomes irrevocable, or in other words, unchangeable. At that point your successor trustee will take over and follow the distribution provisions laid out in your trust. Since the trust is a legal entity, not a person, and it is not dead, there is no need to begin a probate proceeding in court.
Benefits of a Trust vs. Will
- Protects your privacy – is not filed with a court
- Can reduce your estate taxes
- More easily transfer assets to beneficiaries after you pass away
- Assets in the trust pass outside of probate (probate avoidance)
- Allows for asset management during moments when you are incapacitated
The Life cycle of a trust
A revocable living trust is created when the attorney drafts it and you sign it. But, it also needs property – or assets. You and your attorney will work together to “fund the trust”, which is to say, you will update your bank accounts and deeds to real property so that the owner is changed to the trustees of the trust. The steps taken to fund the trust with property and assets make the estate planning process longer than if you were implementing a standard Will.
What if assets or property are left out of the trust?
If you do not place an asset in the trust property, at your death that asset becomes part of your probate estate. What this means is: you own it in your individual name, and, it is subject to the probate legal process. This legal process requires a court to oversee the distribution of your probate assets to the ownership of others such as your heirs or beneficiaries.
Probate courts will accept a properly executed Will and then oversee its use as the Personal Representative follows the instructions described in the Will. If no Will exists the laws of intestacy apply. A healthy estate plan should contain a Pour-Over Will which is a Will that names only one beneficiary: your trust. Its main goal is to capture any assets which were accidentally left out of the trust and pour them over into the trust.
A Pour-Over Will can be used to place assets into the trust
Common questions about revocable living trusts
- What is in a living trust? – Your assets, such as your home, bank accounts, and personal belongings. You still benefit from and control those assets during your lifetime. After your pass away, your successor trustee takes over and transfers the assets to the beneficiaries you designate.
- What are the advantages of having a trust? – By using a trust as your estate planning tool you can empower someone to assume responsibility of your assets (home, bank accounts, etc..) if you are ever disabled. A trust contains your written instructions on how to manage those assets. Additionally, by placing your assets in trust your estate avoids probate costs and fees upon your passing. Lastly, for some carefully crafted trusts, they legal provisions can help lower or avoid estate taxes and may even contain special needs trusts for disabled beneficiaries.
- What is the difference between a Will and a trust? – A Will, or a Last Will and Testament, is a set of instructions to be used under supervision of a court. The instructions direct how your estate is to be managed and by whom. A trust is also a set of instructions, but its goal is to avoid court supervision (and therefore, the costs associated with it) and it also has provisions for managing your affairs if you are ever disabled/incapacitated. A Will does not help with those issues.
- What are the different types of trusts? – Of the most common trusts, there are revocable (changeable) and irrevocable (unchangeable) trusts. A living trust is often a revocable trust. Quite often the term “revocable living trust” is somewhat redundant. More complex, or advanced types of trusts are Irrevocable Life Insurance Trusts, Credit-shelter trusts, Generation-skipping trusts, Charitable Remainder Trusts, Charitable Lead Trusts, and so on.
- What if I want to change a trust? – A revocable trust can be amended, completely rewritten (by restatement) or terminated. As you live your life your circumstances and family situation will change over time. That is why a revocable trust is a commonly used estate planning tool because it can be updated or modified. An irrevocable trust cannot be changed.
Begin creating your estate plan
A revocable living trust should be part of a healthy estate plan which is a set of legal documents that are designed to help you deal with moments of incapacity in addition to end-of-life concerns.
If you would like to meet with an attorney
Oregon Laws Regarding Trusts
Below are some of the laws that apply to trusts in Oregon.