Attorney discussing a revocable living trusts.

Three Things You Should Know About Revocable Living Trusts

A revocable living trust is an essential estate planning tool. You can accomplish many things with a trust that you cannot do with a will. However, you can lose many of the advantages of a living trust if you do not complete the necessary steps. A California estate planning attorney can draft the trust document and give you advice on the rules that govern these instruments. 

Here are three things you should know about revocable living trusts.

What Do These Words Mean? Terminology Used in Trust Documents

Trust documents use terminology that you do not hear in everyday conversation. It can be a challenge to understand who the parties are without an explanation. Here are some of the common legal words used in trusts:

  • Settlor. The settlor (sometimes called a grantor or trustor) is the person who sets up and funds the trust. If you set up a living trust to distribute your assets, you are the settlor.
  • Trustee. The trustee is the person who manages the assets of the trust. Often, the settlor is the initial trustee during his or her lifetime. A successor trustee steps in when the settlor dies or becomes incapacitated, or sometimes if the settlor does not wish to serve as an initial trustee at all.   The settlor may name another person to serve as initial or successor trustee, such as a friend or relative, or a professional, like an accountant, financial planner, lawyer, or private professional fiduciary. For large trusts, the settlor may name a professional entity, such as the trust department of a bank, to serve as the initial trustee or the successor trustee.
  • Beneficiary. The person who receives the benefit of the trust assets is the beneficiary. For example, while you’re living, you may be the beneficiary of your living trust.  If your trust will one day distribute your assets to your child, your child is a successor beneficiary of your trust.

When Can You Change Your Revocable Living Trust, and When Can it Not Be Changed?

You can change the terms of your revocable living trust or revoke it entirely at any time before you die unless you become incapacitated. A well-drafted trust should specify when you are incapable of managing or changing your trust, such as when two physicians sign letters affirming that you lack the capacity to manage your financial affairs. You are generally incapable of serving as trustee or of changing your trust if you cannot make decisions for yourself or communicate your decisions to others. 

Incapacity is often permanent, but it can also be temporary.  For example, you might suffer from a serious physical injury or illness, or from mental illness or substance abuse issues, that cause you to be temporarily unable to handle your affairs. if you regain the ability to make decisions for yourself and communicate them to others then you may have legal capacity once again.  A well-drafted trust can ensure that your affairs are attended to for as long as you remain incapacitated.

What Are Some Reasons Why People Set Up Revocable Living Trusts?

A revocable living trust provides you with many more options for distribution than a will. With a will, the assets typically get distributed within a year or two of your death, and the estate gets fully distributed and closed at that time. With a trust, you have more flexibility, and you can spread out the distribution of assets over many years.  For example, instead of receiving an inheritance all at once, your child may receive a share of the assets when he or she turns 25, 30, and 35. 

You can provide for other unique circumstances with a trust as well.  For example, if you have a relative with special needs, or a beneficiary who does not handle money well, or a beneficiary who is planning to qualify for Medicaid for nursing home expenses, the trustee can retain discretion to limit the distributions where appropriate. Some trusts can also help you reduce the taxes on your income and assets. 

Finally, unlike a will, a trust can often be administered without the need to go through the probate court. As a result, a trust can provide more privacy. A trust may also allow the trustee to distribute assets more quickly to beneficiaries and with fewer administrative costs than a will that goes through the probate process.

These are only a few examples of the many advantages of living trusts. Talk with our California estate planning attorneys today. Our lawyers can explain additional aspects of these important legal documents and work with you to draft a living trust that meets your needs and goals.