Living Trusts and Probate Law

For most people the best way to avoid probate is with a Revocable Living Trust.

A Revocable Living Trust is a Will substitute. There are three parties to a Revocable Living Trust.

1. The Settlor is the person who “Sets Up” the trust, dictates the terms and conditions of the trust such as who the beneficiaries will be and exactly when they will receive the assets of the trust(usually after the death of the Settlor hence this is sometimes call a Will substitute).
2. The second party is the Trustee. The Trustee makes all decisions for the Trust including the amounts of income or principal to be distributed back to Settlor during the Settlor’s lifetime. The Settlor is the only beneficiary during the Settlor’s lifetime (hence the Settlor is called the Lifetime Beneficiary of the Trust).
3. The third party to the Trust is the Beneficiary or Beneficiaries, if the Trust is for a Husband and Wife. The Beneficiary receives all the income from the trust and pays income taxes on their personal 1040 on all trust income. Typically a separate Trust Income Tax Return Form 1041 IS NOT required and the trust typically uses the social security number of the Settlor. All income of the trust is reported under that social security number.

Finally upon the death of the Settlor or the last to die, if there is a Husband and Wife, the eldest or most responsible child of the Settlor was appointed as the Successor Trustee will become the Trustee and distribute the remaining assets of the trust to all Trust Beneficiaries(usually equally among all the children of the Settlor but this is not required). If assets are going to minor children or grandchildren typically the assets will remain in trust and be distributed to the minor children or grandchildren when they reach certain ages such as one-third at age 25, one-third at age 30 and one-third at age 35 or can be distributed at any age for the college education or health or medical needs at any younger age.

No. The primary purpose of a Revocable Living Trust is to avoid the time and expense of going through Probate. A Revocable Living Trust does not protect assets against long term care costs of a nursing home, Medicaid or other creditors. To get this type of protection you would need an Irrevocable Trust.

If someone has a Revocable Living Trust then a Guardianship may not be needed if all assets have been properly placed into the Trust. If a person subsequently becomes incapacitated then the Co-Trustee, usually a Spouse, or a Successor Trustee, usually a Child, can take over and manage all of the person’s financial affairs and pay all their bills as Trustee of the Trust. This often, but not always, eliminates the need for a Guardianship.