Living Trusts in Plain English
What is a Revocable Living Trust?
A trust is an agreement that determines how a person’s property is to be managed and distributed during his or her lifetime and also upon death. For an explanation of the tax benefits and reasons to establish a trust, go to our estate planning page.
A revocable living trust normally involves three parties:
- The Settlor – Also called grantor or trustor, this is the person who creates the trust, and usually the only person who provides funding for the trust. More than one person can be a settlor of a trust, such as when a husband and wife join together to create a family trust.
- The Trustee – This is the person who holds title to the trust property and manages it according to the terms of the trust. The settlor often serves as trustee during his or her lifetime, and another person or a corporate trust company is named to serve as successor trustee after the settlor’s death or if the settlor is unable to continue serving for any reason.
- The Beneficiary – This is the person or entity that will receive the income or principal from the trust. This can be the settlor (and the settlor’s spouse) during his or her lifetime and the settlor’s children (or anyone else, or a charity the settlor chooses to name) after the settlor’s death. A trust is classified as a “living” trust when it is established during the settlor’s lifetime and as a “revocable” trust when the settlor has reserved the right to amend or revoke the trust during his or her lifetime.
How is a Living Trust Created?
There are two basic steps in creating a revocable living trust. First, an attorney prepares a legal document called a “trust agreement” or a “declaration of trust” or an “indenture of trust” which is signed by the settlor and the trustee. Secondly, the settlor transfers property to the trustee to be held for the benefit of the beneficiary named in the trust document.
Can a Trust be Changed?
Yes. The settlor ordinarily reserves the right in the trust document to amend or revoke the trust at any time during his or her lifetime. This enables the settlor to revise the trust (or even terminate the trust) to take into account any change of circumstances such as marriage, divorce, death, disability or even a “change of mind.” It also gives the settlor the peace of mind that he can “undo” what he has done. Upon the death of the settlor, most revocable living trusts become irrevocable and no changes are then allowed. Sometimes the trust becomes irrevocable after the death of a spouse if the trust was jointly created by a married couple.
If you have questions about a trust or estate planning in general, Call us at HAVENS MALCZYNSKI GRIGOLLA, LLP for a free consultation. (626) 385-6303. www.glendoralaw.com mail to: firstname.lastname@example.org.