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Q: What is a Revocable Living Trust?

A Living Trust is an arrangement in which a person, known as a Settlor, transfers ownership of their assets from themselves to another entity, the trust. Thus, you can set up a trust with your own assets and retain complete management and control of the assets by acting as your own trustee, or you can designate someone else as trustee to manage the assets for you. It is called a “Living Trust” because it is created during the Settlor’s lifetime and can be amended or revoked prior to incapacity or death.


This is different from a “Testamentary Trust” which is created upon the death of the Settlor, usually through a will that has been probated, or an “Irrevocable Trust” where decisions are final and irreversible.


Q: How does a living trust function as a management device if I am incapacitated?

In the event that you are incapacitated, the trust will provide for an alternate trustee, called a successor trustee, whom you have selected to manage the funds and assets in the trust for you. Trust documents prepared by our offices specify that two non-prejudiced licensed physicians may agree in determining that a Settlor is mentally or physically incapable of continuing in a fiduciary capacity.


Q: How does a living trust serve as a substitute for a will?

The trust document provides for the distribution of the Settlor’s assets upon the Settlor’s death. Thus, on the death of the Settlor, the trust assets are distributed by the trustee directly to the beneficiaries who are designated in the trust. There is no automatic court supervision or probate of this distribution process as there is when someone dies with just a will. This is generally less costly and faster than the distribution of assets pursuant to a will.  In order for a living trust to function as a will substitute and avoid probate, the Settlor’s assets must be transferred into the living trust during the Settlor’s lifetime.


Q: Does a living trust save taxes?

The use of a living trust does not in and of itself save taxes, but a living trust may be one vehicle for doing tax planning - a far more efficient vehicle than a will.  Proper tax shelter trusts between spouses include Disclaimer style trusts and Bypass trusts.  The use and operation of such trusts is beyond the scope of this article, but our offices thoroughly explore these planning options with each of our married clients.


Q: Can a living trust be used to obtain Medicaid benefits?

For people who are facing the need for long-term custodial care, Medicaid, the state-administered, federally funded medical program for the indigent, is often explored as a source of coverage. Putting your own assets into a revocable living trust does not shield or protect those assets for Medicaid purposes. However, additional estate planning such as the use of Retained Powers of Appointment and/or special language in the trust and the Power of Attorney, which allow certain types of gifting or the ability to transmute the character of property between spouses, may be available to help a Settlor qualify for Medicaid benefits.


Q: Who can serve as a trustee of a living trust?

A trustee can be an individual, such as a family member or friend, provided they are United States citizens; or it can be a bank or other financial institution. If you choose an individual to serve as trustee, you want to make sure that he or she is trustworthy and able to manage your assets. Some people prefer a neutral third party, such as a bank or trust company.


Q: If I have a living trust do I also need a will?

Although a Living Trust functions as a will substitute, it is necessary even with a living trust to have a “pour-over” will. A Pour-Over Will is included as part of a good estate plan, as it makes sure that any assets that were not transferred into the trust during the Settlor’s lifetime are poured over into the trust on the Settlor’s death. If all of the Settlor’s assets have been transferred into the trust during the Settlor’s lifetime, the Pour-Over Will will never be used and will never have to be admitted into probate.


Q: If I have a Living Trust do I still need a Power of Attorney for Finances?

It is always advisable to have a Power of Attorney for Finances in addition to the Living Trust. This is because there are some decisions that have to be made on your behalf that are outside the scope of a Trustee’s power. This may involve decisions needing to be made concerning non-trust assets such as IRAs, Life Insurance and Annuities, or assets that were not funded into the trust.


Q: Who are parties to a trust?

Individuals often serve many functions simultaneously; a person might be a wife, mother, teacher, and a community leader.  Each role is distinct and important.  Similarly, when you have an estate plan that contains a Living Trust, you will generally serve as the Settlor, the Trustee, and the Beneficiary.  Other roles, distinct from the trust but related to your estate plan, are the roles of Guardian or Conservator, Executor, Agent under a Power of Finances, and Agent under an Power of Attorney for Health Care.

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