Trustworthy Trusts

     Revocable Living Trusts (RLTs) are popular estate planning tools. The purpose of this article is not to provide a legal treatise on the subject of RLTs, but rather to introduce you to how they work, some of their benefits and drawbacks, and some important considerations when creating an RLT.

RLT Basics

     An RLT is a written legal agreement involving three parties: the Trustmaker (also known as a Grantor, Trustor or Settlor), the Trustee and the Beneficiary. Initially, upon its creation, the Trustmaker, Trustee and Beneficiary are one in the same person. Moreover, there can be, and often are, more than one Trustmaker, Trustee and Beneficiary at any given time. [Note: Depending on the law of their jurisdicition and their unique circumstances, a married couple may share one joint RLT or each may have separate RLTs.]
     After the Trustmaker and Trustee sign the RLT legal agreement, the Trustmaker funds the RLT (i.e., retitles assets into the name of the RLT). This is a critical step, much like putting fuel into a brand new automobile. Once the RLT is signed and funded, the Trustee manages and distributes the RLT assets for the Beneficiary according to the instructions in the written legal agreement.
     Later, if the Trustmaker/Trustee becomes incapacitated, as defined in the RLT agreement, then the successor Trustee appointed in the RLT seamlessly manages and distributes RLT assets for the Trustmaker/Beneficiary based on instructions in the RLT agreement itself. Since the Trustee holds legal title to the RLT assets for the Beneficiary, no Probate Court need interfere in the financial affairs of the incapacitated Trustmaker/Beneficiary.
     Finally, upon the death of the Trustmaker/Trustee/Beneficiary the RLT becomes irrevocable and the successor Trustee seamlessly manages and distributes RLT assets for the successor Beneficiary according to the instructions in the written legal agreement. In most jurisdictions, no Probate Court need interfere in this process of transferring assets to the RLT successor Beneficiary.

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Asset Re-Titling

     Asset re-titling (also known as trust funding) is the process of placing your assets under the ownership and control of your Revocable Living Trust (RLT). It is a vital component of any RLT-based estate planning process. Only those assets that are titled in the name of your RLT (or that designate your RLT as beneficiary, where appropriate) will be controlled by the terms of your RLT. Otherwise your assets may be subject to probate, may lose valuable protection from estate taxes and may not pass to your beneficiaries as specified in your estate plan.
     There are three fundamental steps in the Trust Funding process:
     Identify all of your assets by:
     Type: For example, is this asset a bond certificate, a certificate of deposit, or a publicly-traded stock certificate?
     Value: How much is it worth and is it encumbered by debt?
     Ownership: Do you own it individually or jointly with a spouse or others?
     Transfer ownership to your RLT:
     Once you have identified your assets, you can begin transferring ownership to your RLT by sending written notice to the various institutions involved. In that notice you identify the asset, the name of your RLT and then request the change of ownership or beneficiary designation. Note: Do not be surprised if they respond with a request for completion of their own in-house form.
     Maintain your Trust Funding:
     As you acquire additional assets, be sure to title them in the name of your RLT or use the appropriate beneficiary designation from the outset.
     Here is a review of some assets that require special (and careful) attention when funding your RLT (now or by beneficiary designation).

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