Revocable Living Trust
The revocable living trust is a document that is used when an estate is trust-based, along with several other documents including a will. It involves several phases and parties.
What is The Revocable Living Trust?
The revocable living trust is created as a guideline that determines the manner in which an individual’s estate or property is to be handled throughout his lifetime and also upon his death. This person who creates the trust is referred to as the grantor, trust maker, trustor, or settlor.
The revocable living trust involves three parties and covers three distinctive phases of the life of the trust maker. It is called a revocable living trust because the grantor has kept the right to revoke or change the trust as he sees fit during his lifetime.
Creating a Revocable Living Trust
The grantor arranges for an attorney to prepare a legal document referred to as the declaration of trust, trust agreement, or indenture of trust. This document must be signed by the grantor and the trustee. The trust includes details that are normally included in a will, so the will includes only the barest details as there isn’t any need to repeat the information.
The revocable living trust is designed to cover three distinctive phases of the grantor’s life: when he is living, if he becomes mentally incapacitated, and when he dies. For many estates, only the first and last phases ever occur.
The first phase of the revocable living trust involves the time when the grantor is alive. No matter who the trustee is during this time, certain provisions are in place that allow the grantor to invest, manage, and spend the assets held in the trust. However, the trustee oversees each transaction and must agree to them.
The second phase of the revocable living trust only comes into effect if the grantor becomes mentally incapacitated whether due to natural causes or medical treatments that render him unable to perform with mental acuity. Specific procedures are outlined that determine how the estate is handled during that time including all bills and assets. The successor trustee who takes over the duties of the trustee is referred to as the disability trustee and is named within the revocable living trust.
The third phase of the revocable living trust comes into effect when the grantor has died. The successor trustee at his time is referred to as the administrative trustee. He handles all of the grantor’s financial obligations including taxes, bills, and other debts. The administrative trustee also distributes the estate funds to the beneficiaries once the estate has been settled. Typically, the disbursement of funds is clearly outlined in the revocable living trust.
Who Are the Parties Involved?
Not counting the attorney who prepares the document, three distinct parties are involved with this type of will. They include a grantors, trustees, and beneficiaries.
Grantors: The grantor is the individual who creates and typically funds the trust. In the case of a family trust, more than one individual is involved, creating more than one grantor. A common example of this latter scenario is a husband and wife who create a family trust together.
Beneficiaries: The individuals who receive the income generated from the trust are referred to as the beneficiaries. Typically, the grantor is also the beneficiary during his lifetime. After the grantor has died, the individuals selected according to the terms of the trust are the beneficiaries.
Trustees: This individual holds title to the property held within the trust. The grantor often acts as his own trustee, but he may also assign someone to act on his behalf. Common choices for trustees include attorneys, institutions owned by the grantor, and spouses. The trustee must follow the guidelines set forth in the trust when managing this property. Typically, the grantor acts as the trustee during his lifetime, and another individual takes over when the grantor dies or becomes incapacitated.
Estates are either trust-based or will-based. The revocable living trust allows the grantor to have control over his estate during his lifetime while determining how it is handled should he become incapacitated or die. The grantor has the right to make changes or completely do away with the revocable living trust, granting him full control over the destiny of his estate.