When you think of estate planning, you likely think first of a Last Will and Testament. While a Will generally serves as the foundation of a comprehensive estate plan, it usually should not be the sum total of your estate plan. Estate planning is highly individualized, meaning that no two estate plans are exactly alike. However, there are some commonly used estate planning tool and strategies, such as a living trust. Not all that long ago trusts were almost exclusively used by the very wealthy as a tool to retain control over the family fortune while still passing it down to future generations. Today, trusts may be used by anybody when estate planning. Only your experienced Illinois estate planning attorney can help you decide if a living trust is right for your estate plan. However, it may be beneficial to know a little more about how a living trust works.
Testamentary vs. Living Trusts
All trusts are broadly divided into two types – testamentary and intervivos, or living, trusts. A testamentary trust is a trust that does not become active until your death. A living trust, as the name implies, is a trust that becomes active during your lifetime. Once all of the elements of creation have been satisfied, a living trust can be activated. Those elements include:
- Trustor – the Trustor, also referred to as the “Maker” or “Settlor,” of a living trust is the person who creates the trust.
- Trustee – the Trustee is responsible for administering the trust which includes abiding by the trust terms and distributing the trust assets pursuant to those terms.
- Beneficiary – every trust must have at least one beneficiary, though a trust may have many beneficiaries. A beneficiary can be an individual, an organization, or even the family pet. Beneficiaries can be current or future, meaning they receive benefits now or in the future.
- Trust terms – the Trustor establishes the terms of the trust. As the Trostor, you may include almost any terms you wish as long as they are not illegal or unconscionable.
- Funding – a trust must have sufficient funding to accomplish the trust purpose. Funding may include almost any type of assets, such as cash, securities, or real property.
Revocable vs. Irrevocable Trusts
Living trusts are further sub-divided into revocable and irrevocable living trusts. A revocable living trust can be modified or revoked by the Trustor at any time and for any reason – or for no reason at all. An irrevocable living trust cannot be modified or revoked by the Trustor once it becomes active. Modifying or revoking an irrevocable living trust can usually only be done with court approval and then only for a very good reason. Because it does not activate until the death of the Trustor, a testamentary trust is always a revocable trust until it takes effect, at which time it becomes an irrevocable trust. Living trusts, on the other hand, can be revocable or irrevocable at the time of their creation.
Why Should You Include a Living Trust in Your Estate Plan?
A living trust can be used to accomplish a number of different estate planning goals and objectives. Which type of living trust you decide to use will depend on which goal or objective you are focusing. Some common uses for a living trust include:
- Incapacity planning
- Probate avoidance
- Parents with minor children
- Asset protection
- Special needs planning
- Medicaid planning
- Blended families
- Pet planning
- Tax avoidance
Whether you make your living trust revocable or irrevocable will also depend on what your goals are for the trust. If, for example, you are concerned with asset protection or Medicaid planning you will need to create an irrevocable living trust. On the other hand, if incapacity planning is your objective, a revocable living trust is the answer. Because trusts have evolved considerably over the last century, there is now a specialized living trust for almost every estate planning goal. Moreover, because you are able to create your own trust terms, you can customize your living trust to fit your unique estate planning needs.
For more information, please join us for one of our upcoming seminars or contact the experienced Illinois estate planning attorneys at Nash Bean Ford & Brown, LLP by calling 309-944-2188 to schedule your appointment today.