A trust is a contract between you as the “Grantor” and you as the “Trustee.” Think of it like a car that holds your property. The car is the trust, and you place assets into it. You control the trust because you (and your spouse) hold the car keys. You can put assets into the trust and take assets out of the trust. A trust is the foundational way to distribute much of your “estate” (assets you own) upon your death.
Many types of trusts exist. The two main ones are a revocable living trust, sometimes called a “living trust,” and an irrevocable trust. In an irrevocable trust, the grantor gives away and loses control over the assets that are part of the trust. In a revocable living trust, the grantor does not lose control over the assets and continues to manage them during the grantor’s life. The successor trustee manages the assets in the trust after the grantor passes away.
A revocable living trust (also known as an intervivos trust) is a signed agreement between you and whoever will be your trustee. You can be your own trustee if you wish. It is a “living instrument,” unlike a will, because it states what happens to your property during your lifetime (the trustee will hold it, invest it, pay your bills, give it back to you if you want it back, etc.) Then, at disability or death, the trust instructs the trustee to pay your final bills, pay taxes (if any), and distribute what is left to your beneficiaries—in the manner and at the time you want the distributions to occur. This can be a great benefit if you have children who don’t manage or handle money and finances well.
An estate plan using a revocable living trust involves a two stage process. First, you must get efficient, effective and comprehensive documents signed. Secondly, you must transfer nearly all of your assets to the trust. It is very important to get all or nearly all of your assets transferred to the trust as major benefits are lost if assets are missed or not included.
All plans involving revocable trusts should also have a special “pour-over” will, which is not what you think of as a normal will. This is a special will that just leaves everything you left out of the trust to your trust. This will serves as a safety net in case you forget to place some assets in your trust, but it is generally hoped that this pour-over will is not needed at death because all or nearly all assets will already be in the trust. Two of the goals of a trust are to avoid probate and conservatorships.
- A big advantage to a revocable living trust is it avoids the probate court process at death. At your death, your trustee simply follows the instructions set out in the trust document and settles your estate. No court has to be involved. This saves time, hassle and attorney fees and court costs.
- At death or disability, there is no court involvement and, oftentimes, very little attorney involvement.
- It is private. Because there is no probate court process, your planning wishes and assets remain confidential.
- It is a “comprehensive” estate planning tool that works on your entire estate. It is not the asset- by-asset process involved with joint tenancy or beneficiary methods.
- It is easy to amend or change as your intent changes. Best practice is to restate the trust rather than hook together a string of amendments, and this is easily done with modern technology.
- It is the most economical plan at death and during lifetime mental disability.
- This plan also provides for easy management succession during life if you become sick or disabled. Your next named trustee simply steps up and begins to help.
- It has very simple and understandable distribution language that can be used: “I leave all of my property to my children in equal shares.” But better yet, you can leave assets to your children and or grandchildren when you want and in the way you want. Distributions can be “stretched-out” over time to avoid a beneficiary just blowing the money within a year or two after your death. And, you can structure the trust to help the money and assets you leave to your beneficiaries to be creditor protected and predatory (divorcing spouse) protected.
- You can name guardians, conservators and trustees to manage matters for your minor or adult children or grandchildren after you are gone. This becomes very helpful the larger your estate is.
- You can appoint anyone you wish to be the trustee. You can appoint yourself to start with and then appoint successor trustees as you wish. Many folks appoint one or more of their children as co-trustees or successor trustees. You also may appoint an unrelated professional or bank trust department with experience in handling trust matters. This sometimes relieves the stress among children revolving around power issues and arguments over who is going to be in charge.
- The trust process is more complicated at the time you do your planning. More information must be provided to your planner to get the desired end product. But, broken down into a process, it is still very understandable as you go through it.
- Assets must actually be transferred to the trust, which is called “funding” the trust by proper changes to titles and beneficiary designations. This is a detailed-oriented process that initially occurs just once, and it is absolutely necessary to achieve the goal of probate and conservatorship avoidance. Most folks can do most of their own transfers to hold costs down, and good attorneys will help by giving them instructions about what to do.
- The documents in the trust process tend to be more complicated than a simple will. There are many contingencies (if-then situations) that are covered, and this makes for a more complicated document set. However, even though the documents are more complicated, that means they also are more complete because the trust plan covers, in one way or another, nearly all of your assets into one plan.
- The trust process normally costs more at the planning stage and much less at death (no probate) and at mental incapacity (no conservatorship). A will plan normally costs less in the planning process and more at death or mental incapacity.
If You Don’t Have a Trust
If you don’t have a will or trust, Colorado has a plan for you. Most people will not like Colorado’s plan. When a person dies without a Will his or her estate will be distributed according to the laws of descent and distribution found in the Colorado Probate Code, C.R.S. 15-10-101 et seq. For a few people, these statutes may be sufficient; however, in the vast majority of cases, the individual or couple wants to do something with their Estate other than what the State directs your family do with it. If your Will or Trust is more than five (5) years old you should have it reviewed to make sure it complies with your current circumstances and needs.
The Cost of Setting Up a Revocable Trust
Most of my work for Estate Planning is done on a flat fee basis. This means there is one price, and you will not be billed on an hourly basis for the Estate Planning. However, people have different circumstances and assets. Estate Planning is tailored to your specific goals, situation and desires. The cost of the planning will vary depending on the nature, extent, and complexity of your estate plan. One size doesn’t fit all. The fee will be determined by what type of planning you want. Some folks just want the basic trust plan and other people want some trusts to protect their children and grandchildren. You will have choices to make. In the end, after knowing your options, you will choose the plan you feel most comfortable with in terms of meeting your own goals, circumstances, needs, and desires.
Your planning should be what you would do if you knew you could. In most every situation, it is less expensive to put an estate plan into place before disability or death rather than make your loved ones endure the longer “probate” court process, which can tie the probate assets up for six months or longer.