Trust Based Estate Planning

A Revocable Trust Based Estate Planning usually includes a Revocable Living Trust, a Will, a Durable Financial Power of Attorney, an Advance Medical Directive and Durable Medical Power of Attorney, and a Medical Release. It may also include deeds, recommendations on retitling assets or changing beneficiary designations, and assistance with trust funding.

OK, what do these mean?

Revocable Living Trust

A Trust is a contract between one person, called a Grantor (or Settlor or Trustor or Trustmaker), and a Trustee. The Grantor can be (and usually is) also the Trustee. The Trust Agreement states what the rights and duties of the Grantor are, and what the rights and duties of the Trustee are, regarding the assets managed by the Trustee.

Let’s break that sentence apart.

• Who is the Grantor? We draft both joint and single trusts. A joint trust is a trust created by two persons, usually husband and wife, in one document.  They would each be Grantors.  A single trust is a trust created by one person, who may be either single or married.  That person is the Grantor. 
• Who is the Trustee? In a joint trust, normally, both Grantors are the Trustees. In addition (or instead), a child, or a professional Trustee may be named. The Grantor will also name alternate Trustees, who can act if the original Trustees cannot.
• Rights and duties of the Grantor: typically the Grantor, while competent, has the right to tell the Trustee what to do with the assets owned by the trust. The Grantor, while competent, has the right to amend the trust, to revoke the trust, and to remove a Trustee and to appoint a new Trustee. If the Grantor is incapacitated, the ability to amend or revoke the trust, or direct the Trustee, is suspended, and the Trustee is to use the trust assets for the benefit of the Grantor. 
• Rights and duties of the Trustee: typically the Trustee has the right to invest, spend, and (sometimes) gift the assets owned by the trust. The Grantor may limit this in the terms of the trust by, among other things, restrictions on the following:
  • Beneficiary: usually, a trust names the Grantor as the beneficiary. This means that the money in the trust can only be used for the benefit of the Grantor. The trust may, but does not need to, also name other persons who can benefit from the trust during the lifetime of the Grantor. The trust will also name contingent beneficiaries who will benefit from the trust upon the death of the Grantor. 
  • Investment standard: the Trust may allow the Trustee to invest as the Trustee sees fit, or may place restrictions on the investments made by the Trustee. 
  • Gifting: generally, trusts do not allow the Trustee to give away Trust assets. The exception is that the trust may (but does not have to) allow gifting in accordance with the Grantor’s lifetime pattern of giving, for tax planning purposes or if the Grantor is in need of assisted living or long term nursing home care, and Medicaid or Aid & Attendance planning is desired. 
  • Accounting: the trust can state who is entitled to know what is happening with trust assets. The Grantor, while competent, always has a right to know. However, if the Grantor is incapacitated or deceased, the trust can direct who in the family can know what is happening (and who cannot know).
• Assets owned by the Trust: to get the most benefit from a trust, it is important that certain (although not all) of your assets be transferred so that they are titled in the name of the trust. Your checking account, your savings account, your home and other real property, your certificates of deposit, etc. are examples of assets that should normally be retitled into the name of your trust. This way, your Trustee is in charge of the assets.

Why might you need a Revocable Living Trust?

• Management of trust assets during lifetime
• Management of trust assets upon incapacity
• Transfer of assets at death without probate
• Estate tax savings (for married couples only)
• Transfer of assets at death to your desired beneficiaries
• Ability to postpone or manage an inheritance: 
  • for younger beneficiaries 
  • for Special Needs beneficiaries 
  • for beneficiaries with drug or alcohol problems 
  • for situations such as impending divorce, creditor problems, etc.
• Avoidance of ancillary probate (probate in other states)
• Privacy; a trust normally avoids court supervision of asset management during the Grantor's incapcaity, and of the transfer of assets at death

We know nothing in life is all good (except maybe our grandchildren) or all bad. What is bad about a revocable trust?

• Cost: A Trust-based plan is more expensive than a Will-based plan (at least in the short run).
• Extra work for you: Done correctly, not only do you create the trust, but you must also fund the trust.  You should retitle many of your assets into the name of the trust. In effect, you do during your lifetime what your Personal Representative or Executor would have done at your death. So, basically, either you do it during lifetime, or your Personal Representative or Executor (usually your children) does it at your death.

Pour-Over Will

You know what a Will is. It names someone to be guardian for your minor child(ren), directs who inherits from you (your beneficiaries), names a person to manage the inheritance (your Personal Representative or Executor), and outlines how the Personal Representative or Executor must administer your estate. A Pour-Over Will does all of these things; however, the beneficiary of a Pour-Over Will is your trust.

Many of your assets should be titled so that they are owned by your trust. However, there are other assets that can not and should not be transferred to your trust during your life. The Pour-Over Will states that whatever assets you own at your death that have not been transferred to your trust and are in your name alone with no joint owner or no listed beneficiary, are to be transferred to your trust at your death.

Durable Property Power of Attorney

When you create a Durable Property Power of Attorney (DPOA), you as Principal nominate another as Agent to act on your behalf to manage your financial affairs and property as specified in the DPOA. For example, you as Principal may allow your Agent to sign your checks, deal with your investments, file for employee or other benefits, and make other decisions on your behalf. The DPOA can be effective as soon as you sign it, or you can require a specified condition or event to occur before your Agent can act. When you create your DPOA with us, you will work with one of our attorneys to determine how you would like the document customized to meet your needs and desires.

A DPOA is only effective during your lifetime.  It may be effective immediately upon being signed, or can be restricted so that it is not effective unless you are incapacitated.

During your lifetime, your Trustee manages the assets titled to the trust.  Your Agent under your DPOA manages the assets not titled to the trust.  After you pass away, your Trustee will continue to manage the assets titled to the trust.  Your Executor under your Will manages the assets not titled to the trust that pass by your Will to your Trust. 

Advance Medical Directive and Durable Medical Power of Attorney

An Advance Medical Directive (Living Will) states your wishes regarding life support and pain management should you become incapacitated and are at the end of your life or are in a coma or persistent vegetative state that your doctor believes to be irreversible.

A Durable Medical Power of Attorney names the individual(s) who you authorize to make medical decisions on your behalf if you are unable to do so yourself.

Medical Release

A Medical Release (also known as a HIPAA Release), lets your doctors and medical care providers know which individual(s), other than you, your doctor may discuss your medical condition and prognosis without violating your right to medical privacy.

Trust Funding

What is trust funding? Trust funding is the process of transferring title to bank accounts, investment accounts, home and other real property, timeshares, life insurance, and other assets to your trust. Generally, non-tax qualified assets (i.e., non-IRA, non-401(k), etc.) should be owned by the trust. This is how you avoid probate at your death. Your trust owns the assets, not you, and the trust never dies, so no probate.

Retitling assistance may include drafting deeds, making recommendations on retitling assets or changing beneficiary designations, and making recommendations regarding trust funding.