How to Plan Your Revocable Living Trust

When it comes to preparing an estate plan, many individuals opt for a revocable living trust over a basic last will and testament.

This choice can be for many reasons, including the privacy involved with a trust, the fact that probate is not necessary for administering a trust, and time saved in administration when choosing a revocable living trust.

Certain tips should be kept in mind when preparing a revocable living trust, which include the following specific items.

What Is a Revocable Living Trust?

It first helps to understand what a revocable living trust entails. A revocable living trust is a legal entity that allows the creator of the trust, otherwise known as the grantor, to make specific directions on who will get his or her property and when after he or she dies.

The term “revocable” means that the creator of the trust retains the right to amend or even completely revoke the trust after it is created, so long as he or she is alive and of sound mind.

The term “living” indicates that these documents are created during the individual’s lifetime and can be modified through his or her lifetime.

Put Together a List of the Grantor’s Assets

To be sure that everything is properly funded into the trust, it helps to know what assets are included in the “trust estate.”

One recommendation is to put together a list of all of the grantor’s assets, which includes all real property owned, cars, and other personal property items. Assets can include stocks, bonds, retirement accounts and life insurance policies.

Even if it is assumed that an asset will go directly to the listed beneficiary instead of the trust, it helps to have a complete and accurate list of what is at stake when it comes to the grantor’s property.

This list will help the grantor determine how to designate beneficiaries and titles to accounts. It will also help the trustee after the grantor is deceased since it will give a clear picture of all the property that needs to be distributed.

Find the Associated Paperwork for All Assets

Simply listing the assets is often not enough to really help the successor trustee after the grantor dies. It is equally as important that the individual compile all of the important written documents that go along with the assets, including titles, deeds, life insurance policies and stock certificates.

It helps to get these items in a fireproof safe or other safe location along with the trust so that the successor trustee can easily locate them to help quickly administer the trust and distribute the assets. It helps to also have these documents accessible at the beginning so that the attorney who is creating the trust can make sure that the trust is properly funded with these assets going into the trust and avoiding probate.

Selecting Beneficiaries

When creating the trust, two important designations need to be made when it comes to the property:

  • who will handle the trust and be appointed the trustee
  • who will receive the trust assets as a beneficiary

Before meeting with an estate planning attorney, it helps to list who the beneficiaries will be in the trust.

Many individuals automatically assume beneficiaries only include children and grandchildren or other direct lineal descendants. However, friends can be beneficiaries, as well as other organizations, including charities and other non-profits.

If there is a specific individual the grantor is adamant should not receive anything from the trust, this information will also need to be given, as this person will need to be directly listed in the trust as not receiving trust assets.

Think of when the beneficiaries should also receive the assets. If it is the grantor’s wish that his or her children should receive the assets but only upon a certain age, write down what age the grantor wants that to be.

The clearer the grantor’s wishes are, the less likely the trustee will end up in court defending the trust against beneficiary complaints or disputes.

Naming the Successor Trustee

Normally, the grantor is the initial trustee in a revocable living trust, meaning the grantor maintains control over his or her assets throughout his or her lifetime.

However, a successor trustee and potentially even a second successor trustee needs to be designated to take over once the grantor dies. This person will be in charge of distributing assets per the trust’s instructions and paying any remaining debts.

It needs to be someone who is good with finances and has excellent decision-making skills. In addition, this person is charged with a fiduciary duty, meaning this person must handle the assets appropriately and in the best interests of the beneficiaries. Therefore, it needs to be someone the grantor explicitly trusts.

Selecting a Guardian for Minor Children

The actual living trust document itself does not deal with who will be designated as a guardian for the minor children of the deceased.

This designation is handled in what is known as a “pour-over will,” which ensures that any assets that that are not titled in the name of the trust flow into the trust.

The will also is where the grantor/testator will direct who will take care of his or her minor children in the event of his or her death. This designation is one that is extremely important and takes great thought and should be discussed prior to the trust being written.

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