Might a living trust be the right estate planning tool for you?
At the Arvada Law Offices of Colorado Estate Planning Law Center, we create comprehensive estate plans for our clients. As we have previously blogged, the revocable living trust is a vehicle that can allow you to bypass the probate process in Colorado state court as well as provide a seamless way to have your assets managed without court involvement should you become incapacitated.
These trusts are revocable, meaning that the grantor can change the trust terms or terminate it, making them flexible when life brings unexpected changes.
Living trust basics
A trust is an artificial, legal entity that owns and manages property entrusted to it for the benefit of one or more third parties. An individual (or married couple) can put everything – money, assets, personal property and real estate – into a living trust. A trust maker is called a grantor or settlor.
The legal document that creates the trust, sometimes called the trust instrument, includes instructions on trust management and names beneficiaries, which can be people, legal entities or organizations (like charities), that receive the trust’s benefits, namely income generated by the assets or the assets themselves. During the grantor’s lifetime, he or she is normally the beneficiary, with alternate beneficiaries named to receive trust benefits after the grantor dies.
Finally, a trustee or co-trustees are named to manage the trust according to the trust directives. With a living trust, the grantor is normally the trustee, so that he or she can continue to manage his or her estate. A successor trustee or trustees should be named in case the trustee becomes incapacitated, declines to serve or passes away.
Living trust benefits
The main reason people choose living trusts is to avoid probate. Probate is the process of having a will submitted to state court for administration, namely having debts paid and passing remaining property and assets to the heirs named in the will. If someone dies without a will, his or her estate also goes through probate and passes to beneficiaries that state law designates (mostly close family members).
Benefits to bypassing probate include avoiding the cost of the court process, passing assets to certain people without the opportunity for others to challenge or contest the terms of the will and accomplishing asset transfer in a time.
A living trust survives the grantor’s death, so that the property he or she placed there will continue to be held by it after death and managed or distributed by the trustee according to the trust instructions. No submission to probate is required. The trust could function like a will, however, because the instructions might be to distribute assets to certain beneficiaries after the grantor dies and then terminate the trust. It also could continue to exist and function for later payout to a beneficiary, for example, that the grantor wanted to reach a certain age before receiving a large gift.
Another strong reason for a living trust is that it provides for money and property management should the grantor (and likely trustee) become incapacitated. The trustee or successor trustee would just step in and continue to manage the property. In such a case, assuming the grantor is the beneficiary, the trustee would probably have been instructed in the trust instrument to pay the costs associated with the health condition causing the incapacity as well as provide for paying bills and supporting dependent family members.
Without a living trust, in case of incapacity, it might become necessary for a guardian or conservator to be appointed by a state court to manage the grantor’s affairs.
Tax advantages may be another potential benefit of a living trust in some circumstances.
The main disadvantages of a living trust are usually cost and administration. For example, it is normally more expensive to set up a living trust than write a will, including the costs associated with changing property titles from the grantor to the trust. It may be an ongoing cost to pay a trustee, especially if a bank or trust company is chosen instead of an individual.
A Colorado lawyer can answer your questions about whether a living trust is a good way to meet your goals.