January 13th, 2015

HOW TO USE A

REVOCABLE FAMILY TRUST

DURING LIFE

IN ESTATE PLANNING


 

One of the principal ways to avoid probate upon your death and provide for the management of your assets should you become disabled is to place your assets into a Revocable Family Trust.

The purpose of this short article is to give you a brief explanation of what a Revocable Family Trust is and how it can be used to accomplish many of your estate planning goals.

I hope this helps.


 

1. There are many types of Trusts.

  1. A. An Inter vivos (meaning during life) Family Trust is a trust created during your lifetime. The "grantor" (also called the "settlor," "trustor" or "donor") is the person who sets up the trust (you).

    B. A Revocable Family Trust is an inter vivos trust in which the you, (the grantor),  retain the power to amend (change or modify) or revoke the trust. A revocable trust is usually set up for the benefit of the grantor, the grantor's spouse, children and grandchildren. It is set up when the grantor and the trustee(s) sign the trust agreement (which is sometimes referred to as a "deed of trust," "trust indenture" or "trust instrument") and the grantor funds the trust, with some or all of the grantor's assets. The trust is not valid until assets are transferred to the trust which is called "funding" the trust. (Note that under some state statutes certain trusts, such as those receiving life insurance proceeds at the grantor's death, are valid even if unfunded.) You, (the grantor) retain complete and unrestricted control of the assets of the revocable trust and that is why the assets in a revocable trust are not protected from nursing home costs.

    C. An Irrevocable Trust is an inter vivos trust that cannot be revoked, amended or terminated by you (the grantor) alone. That is why assets transferred to the Irrevocable Trust, like your home, are protected from nursing home costs. It is usually established by the grantor for the benefit of the grantor's spouse, children and grandchildren.

    There are two very important facts you should be aware of with regard to Irrevocable Trusts:

              One, New York law (EPTL Sec. 7-1.9) allows an Irrevocable Trust to be amended if you and the beneficiaries of the trust (your children) agree to the amendment. If you have a good relationship with your children this gives you complete flexibility, even though the trust is "Irrevocable."

              Second, while you, (the grantor) cannot revoke, amend or terminate the Irrevocable Trust by yourself, as a practical matter, you can still retain tremendous control to completely eliminate any beneficiary of the Irrevocable Trust or increase or reduce their share, solely in your discretion through the use of a "Limited Power of Appointment" even if you or your children don't agree. Please refer to my companion article on this website for an explanation of the use of an Irrevocable Family Trust in estate planning.

     

  2.  Why Use A Revocable Trust in Estate Planning?

               A. One benefit of a revocable trust is that it provides management of property during your lifetime. Seniors who become physically or mentally unable to handle their own affairs may need help to manage their assets during their lifetime.

                 B. The most important benefit of a Revocable Trust is that at the time of your death, it avoids the expense, legal complications  and delay of probate. There are simply no legal fees, costs or expenses for probate with regard to the assets in the revocable trust and your children are free to distribute your assets after your passing in a timely manner without losing any percentage or part of your estate to the legal fees, costs or expenses of probate. 

                      Probate can be expensive, time consuming, and frustrating because probate may result in years of delay to settle the estate. Probate is often expensive for the surviving spouse and children, often resulting in less money being distributed to your beneficiaries because of attorney’s fees and expenses inherent in probate. Assets in the trust are administered by the Trustee(s). This saves probate-related costs such as  legal fees and guardian fees for minor children or beneficiaries with special needs.

                     

                 C. A child, friend or family member may serve as a trustee or co-trustee with the grantor, thus providing financial management of the grantor’s assets in the event of the grantor’s physical (heart attack or stroke for example) or mental disability, (Alzheimer’s, dementia, senility).

                 

                D. You may decide that it is necessary for a professional, experienced trustee to become involved to serve as sole trustee or as a co-trustee with a child, friend or family member, which would provide the grantor: