What is in a Revocable Trust?
In two previous blogs, we have looked at reasons why you might want or might not want to establish a revocable living trust. I hired a CPA once who had enrolled in law school to serve as a law clerk for our attorney. In orientation, I asked her about her level of knowledge concerning revocable trusts. She told me she knew all about such trusts. I was a little suspicious of her book knowledge, so I asked her if she had ever seen such a trust. She had not, but she had a wonderful learning experience that year in working with actual trusts. It reminded me that sometimes we need more practical experience in understanding estate-planning documents. Let me use this blog to explain what a revocable trust includes.
I believe that Christians should use the best resources possible to accomplish exactly what they feel the Lord wants them to accomplish with the resources that they manage. A revocable trust has become, for a number of us, a significant part of the process of managing our estates. Thus, let’s explore what is actually in such a trust.
WHAT DOES A TRUST INCLUDE?
A revocable trust is actually a Will substitute (you will still want a “pour-over Will” even though hopefully it will not be used). The trust names the succession of administrators (called “trustees”). For example, commonly, a husband and wife will first serve together, then their survivor, then perhaps their children (either individually or jointly), etc. The trust explains the distribution plan – to whom, how much, in what manner, and when you want your assets transferred. While the revocable trust itself does not change your tax situation at all (you don’t file any tax returns while you are the trustee and it doesn’t save you any taxes or shield any assets from creditors), the trust can provide the same estate planning that a Will can provide. For example, your estate might establish an irrevocable trust for your spouse at your death, which would not be a part of the surviving spouse’s estate for tax purposes. Some people establish an irrevocable trust at the first death to provide professional management for their surviving spouse or to protect that money (even though the spouse can benefit in his/her lifetime) for their children in the event of a remarriage by the surviving spouse. In other words, trusts are very flexible and can accomplish numerous goals and objectives.
The trust will also contain provisions to allow you to revoke or amend the trust during your lifetime, provide procedures for additional trustees if needed, specify the powers you grant to your trustee, clarify contingency plans in the event of premature deaths of beneficiaries, explain fees that can be charged, provide for or limit discretion by the trustee, guide investment decisions that will be made, and a host of others things.
The revocable trust is signed in conjunction with a pour-over Will. Also it is very helpful to have a power of attorney agent named in another document for both financial and health care issues. In the event of your incapacity, there are some matters that are not in the trust and will need to be handled by your power of attorney agent. I have suggested for years that it seems to work more smoothly if the same person, persons, or entity you name as your successor trustees are also your financial power of attorney agent and your executor (in the same order of succession as your trust). Health care decisions may be different and you may want to specify other specific people to make medical decisions for you. In other words, the “money managers” who serve as the successor trustee and financial power of attorney agent will handle all your bills, taxes, insurance, and other such financial matters while your health care agent(s) might be a nurse daughter or someone with more medical experience.