Living Trusts have become an extremely popular estate planning tool, and for good reason. After all, a properly drafted and funded living trust can avoid probate, keep your affairs private, and greatly simplify what happens when someone dies or becomes incapacitated.
The unfortunate part about living trusts is that they can sometimes feel difficult to understand and comprehend.
Forbes’s recent article, “A Beginner’s Guide To Reading A Trust,” says that as much as attorneys have tried to simplify documents, there’s still legalese hanging around that can be confusing. To help remedy that, let’s discuss a few tips in reviewing a living trust document so they make more sense.
First, familiarize yourself with the basic terms of the living trust document. Many key terms can be found on the first page or two, such as the person who created the trust. He or she is frequently referred to as the grantor or settlor. It is also important to identify the trustee, the person who will be responsible for the trust assets and administer them for the benefit of the beneficiaries. It is also important to identify any successor trustees that step in when the primary trustees can no longer act.
You should next see who the beneficiaries of the living trust are, and then look at the important provisions relating to how and when assets are to be distributed to those beneficiaries. See if the trustee is required to distribute the assets all at once to a specific beneficiary, or if she can give the money out in installments over time.
It is also important to determine if the distributions are completely left to the discretion of the trustee, so the beneficiary doesn’t have a right to demand withdrawal of the trust assets. See if the trustee can distribute both income and principal from the trust.
The next step is to see when the living trust ends. Some trusts end when the settlors die, while others keep property protected in trust for future generations.
Other important living trust provisions include whether the beneficiaries can remove and replace a trustee, if the trustee must provide the beneficiaries with an accounting, and whether the trust is revocable or irrevocable.
If the trust is revocable and you’re the grantor or settlor, odds are you can change most or all of its terms.
If the trust is irrevocable, you won’t be able to make any changes without jumping through several hoops, including getting consent of all of the beneficiaries of the trust, and possibly even petitioning the court.
In addition, you should review the boilerplate language, as well as the tax provisions. It is often best to have an experienced estate planning attorney make sure those provisions are up to snuff and current with the latest changes in the law.
Reference: Forbes (June 17, 2019) “A Beginner’s Guide To Reading A Trust”