These are some general considerations for creating a revocable living trust
· Should we discuss our estate plan with our children?
This is a very delicate decision that will depend on your family situation, the relationship between you and your children, the relationships among your children, and whether or not your children (and perhaps their children) are treated equally.
Often the ultimate goal is to avoid hard feelings among siblings once the parents are no longer alive. If one child is given more than the others to compensate him or her for having been the parents’ caregiver, the siblings should know this so that they do not accuse that child of having undue influence over your decision to give him or her more. If a well-off child is given less than his or her less fortunate brothers and sisters, the reason for this decision should be explained to clarify that it does not indicate a lack of love and affection. If one sibling gets a distribution outright while another’s share is held in trust for a number of years, there will be natural resentment unless you explain why, as a parent, you feel it is best for one child to wait and the other not to wait. A similar discussion should take place among spouses of a second marriage and the children of both marriages. If the children of the first marriage are your ultimate beneficiaries, they should know this so that they do not resent the new stepparent for “taking their inheritance.”
· Should I coordinate my estate plan with the estate plans of other family members?
If you anticipate receiving assets from the estate of a family member or if you contemplate making a family member with estate planning concerns a beneficiary of your plan, the other family member’s estate plan must be considered in the development of your estate plan. For example, a family member with significant estate tax concerns may not want to receive additional assets from your plan. In such a case, you may wish to choose a different beneficiary or designate an additional beneficiary since that family member might disclaim the assets he or she is to receive from your plan. If you are to receive assets from the estate of a family member, you may wish to have your estate planning attorney consult with that person’s estate planning attorney to coordinate efforts so that your plan is not significantly altered because of your being a beneficiary of the other family member’s estate plan.
· Do I have to let my beneficiaries and successor trustees know what the terms of my trust instrument are?
One of the many benefits of a revocable living trust is that the wishes of the maker can be kept private and need not be shared with third persons, including family members and named beneficiaries, during the lifetime of the trust maker. Similarly, because the trust is revocable, the trust maker during life can repeatedly amend the trust instrument to change the designated beneficiaries or the distributions to particular beneficiaries without the beneficiaries’ knowledge or consent. After the trust maker’s death, there is no requirement, as there is with a will, that the trust instrument be filed with the court or any particular authority.
As a practical matter, although the specific terms of a revocable living trust need not be disclosed to family members, relatives, or named trustees prior to a maker’s death, the persons selected to serve as trustees should certainly be made aware of the existence of the revocable living trust and their designation as successor trustees after the maker’s death. They can then act promptly following a trust maker’s death to carry out their duties as trustees. After the trust maker’s death, the beneficiaries of the trust will have a right to review the trust instrument so that they can ensure that the successor trustees properly perform their duties and make distributions to the beneficiaries as designated by the trust maker. State law may also allow “heirs at law” to review all or part of the trust to determine whether they are included in the trust.
· Is there a way I can tell my children some personal things which are not included in my estate plan?
Certainly. You can write a statement of your memories, thoughts, and feelings toward them. You can keep this statement in a sealed envelope with your other estate planning documents, or your attorney may be willing to keep this envelope and give it to your children after your death. Alternatively, you can make an audiotape or videotape of yourself in which you express your thoughts and feelings to your children. Some clients do both of these things.
· I’ve heard that everyone should have a will. Does my living trust replace a will?
Yes. A properly drafted and fully funded trust-based estate plan replaces a will. However, as a practical matter, a special will called a pour-over will should be a part of your revocable living trust plan. While it may not be needed if your trust is fully funded and you do not have minor children, it is an important fail-safe device should you fail to put all your assets into your living trust. A pour-over will “pours” any assets that are not in your trust at death into the living trust so that they can be controlled by the provisions of the trust.
Property subject to this pour-over will might well have to be probated. Whether it will or not depends on the type of property and its value. The vastly superior alternative to using the pour-over will and probate is to make sure that all of your assets are placed into your living trust. If that is done, the pour-over will simply “sleeps” inside the trust plan and is never awakened for use.
· How long does it take to set up a revocable living trust?
Typically, it takes about 2 to 3 weeks after the initial consultation to prepare the trust documents. After the trust documents are signed, it is necessary to complete the funding documents that are used to transfer ownership of the assets to the trustee of the trust. This process can take from a few days to several months, depending on the number and types of assets. These time frames can be shortened greatly if an emergency situation exists.
· When does my living trust become effective?
A revocable living trust document and all the ancillary documents created as part of a living trust—centered plan become effective when they are properly signed. In order to receive the greatest benefits from a revocable living trust, however, you must retitle your assets in the name of the trustee. (Technically, title is changed to the name of your trustee, rather than the trust itself; but this is a technicality your attorney can help you with.) If you do not accomplish this, any assets not placed in the trust prior to your death may have to go through the probate process before coming under the control of the trust.
· Will I have to record my trust at the courthouse?
A few states require that you record a memorandum of trust or an affidavit of trust when you convey real property to your trust. Such an affidavit or memorandum sets forth certain facts about your trust. For example, you would state the name of the trust, who the current and future trustees are, and some of the powers of the trustees with respect to assets owned by the trust. Ordinarily, you would not disclose the beneficiaries of the trust, the portion of the trust property which has been designated for each of the various beneficiaries, or the provisions for distributing the trust property.
· I don’t want anyone to know I have a trust. How do I keep my trust confidential?
In certain jurisdictions where the recording authorities require that the trust document be recorded, or in the case where you do not want anyone to know that you have a living trust, you can use an additional document called a nominee partnership to keep your trust confidential. It acts as an agent for your trust, thereby keeping your trust confidential as an undisclosed principal.
· If the trust papers are not filed in the courthouse or other places of public record, how are they recognized as legal documents?
Your trust is much like a contract and is governed by contract law. Since it is not a will, it is not governed by laws pertaining to wills.
When you sign your name to any contract, whether it is for the purchase of a car, an item of personal property, or similar goods, the document is generally not filed in a public forum. Without question, such contracts, once signed, are legal documents and are generally binding upon the parties who have signed them. Likewise, when you sign your trust, it becomes a binding legal document without the necessity of its being filed or made a matter of record.
· What is life like after I put all my assets into a revocable living trust?
Life goes on just as it did before. It’s kind of like putting all your assets into a big box with no lid on it. You can put property in and take it out anytime you want. You have complete control. Unlike you or I, the box doesn’t die or become disabled, so court involvement is not needed to carry on your affairs after disability or death. At death, the lid goes on the box and the trust becomes irrevocable.
· If I am trustee of my revocable trust, do I have to have a separate taxpayer identification number and file a separate tax return for the trust?
No. The Internal Revenue Code classifies a revocable living trust as a “grantor trust.” Thus the IRS allows you to use your own Social Security number as the trust’s identification number as long as you or your spouse is a trustee of your trust. If you are married and have a joint living trust, you can use either spouse’s Social Security number or you can use one person’s Social Security number for some assets and the other person’s for other assets.
The name of your trust will be on a 1099 form showing interest or other income items, and you will report all your income on your federal income tax return (Form 1040) exactly as you did before you set up your trust. This is because the IRS still considers your revocable trust assets to be your assets.
After your death—or if you have a joint trust, after the death of one spouse—if the trust continues, it must get a separate taxpayer identification number and file a trust income tax return (Form 1041).
· How long is the lift of my trust?
A revocable trust can be terminated by the trust maker at any time, and you can specify the termination provision in your trust document.
If you do not specify a time, all but six states (Alaska, Delaware, Idaho, Illinois, South Dakota, and Wisconsin) limit a trust’s length of life. The limitation on how long a trust may last comes from English law and is called the rule against perpetuities. English courts wanted to put limits on legal instruments that affected real estate interests so they developed a common law limiting the effect of certain legal documents to a “life or life in being plus 21 years.” This English common law doctrine was originally adopted by all the states. Some states, such as
Nevada and Florida, have modified the rule against perpetuities to make it less complex and more certain as to how long a trust can last.
Therefore, in a state with the common law rule against perpetuities, if you create a trust that includes a 3-month old grandchild as a beneficiary and that grandchild lives to be 90 years old, your trust could go on for 21 years beyond that—for 111 years!
· Can I change my trust provisions later on?
Because your trust is revocable, it is a very flexible estate planning device. You may revoke, change, or amend your trust document at any time you wish during your lifetime without penalty.
· If there are subsequent changes in the law or changes in my personal circumstances, how do I know my estate plan is still valid?
It is important for you to recognize that an estate plan is constantly changing. As circumstances in your life change, it may be necessary to amend your plan to reflect those changes. You should review your estate plan at least annually to determine whether you need to amend it. If an amendment is necessary, you should contact your attorney for an appropriate modification of the plan.
Your estate planning attorney should notify you of any change in the law that affects your estate plan and should explain how your plan is affected. The combination of review by you and review by your estate planning attorney will ensure that the plan is effective regardless of how long it may be in force.