Missouri Lawyer Michael Gunn explains the basics of using a Living Trust as part of estate planning
During estate planning sessions, I am often asked about revocable living trusts and why people use them. A revocable living trust is a vehicle intended to address common issues in estate planning, such as avoiding probate, order of death, disability planning, tax avoidance, protection of minors’ interests, creditor protection, and others.
A very common misconception is that wills avoid probate, but this is dangerously wrong because wills don’t have any use except in probate. When clients believe that they have things all set, it can turn out that they were operating under a grave (excuse the pun) misunderstanding. Trusts, however, if properly created and funded, do avoid probate, both in the event of death or upon disability. I like to compare it to the creation of your own company: If you become disabled, the company doesn’t. In the event of your death, the company goes on, according to the plan you have adopted for it.
The term “living” is used because you are creating it during your lifetime. The term “revocable” means that it can be amended or cancelled at any time, and the concept of revocability means, as far as taxing authorities are concerned, that it is still you as the taxpayer under your Social Security number.
When the trust is created, as my father would say, you may be wearing three “hats.” First is that of the grantor (sometimes called the settlor or the trustor), who is the one creating the trust. Second is that of the trustee, who is the person managing the assets of the trust. And third is that of the beneficiary, who is the person benefiting from the trust.
There will never be any other grantor or grantors. If they die, the otherwise revocable trust becomes irrevocable. But, as you can see, although there is only one grantor, there will be other or successor trustees and beneficiaries.
Most clients have a knee-jerk reaction to probate having anything to do with their assets, either when they might be disabled or in the event of their death. This is why most lawyer-created estate plans now include revocable living trusts. These trusts are not the only documents executed as part of such a plan, but they are the central part of many. Other documents could include a pourover will. If anything does have to go through probate, a pourover will helps ensure that those assets go right back to the trust and are part of the entire plan. Durable powers of attorney and health care documents are also usually executed.
Finally, trusts have their maximum effect only if they are properly funded. This means that assets of the client are either renamed into the name of the trust or there is some sort of beneficiary designation executed that says that the asset goes to the trust.
Michael P. Gunn, of The Gunn Law Firm, P.C., in St. Louis, has more than 40 years of experience in the practice areas of estate planning, probate and trust administration and litigation and general civil litigation. In addition, he has had an active practice in the areas of business litigation, planning and administration and is a past president of The Missouri Bar.
You may find a lawyer through The Missouri Bar’s free, online Lawyer Search feature. You also may learn more about probate law, including wills, revocable living trusts and advance directives in the bar’s Probate Law Resource Guide available on this website. To order copies of this brochure to be mailed to you, click here.
This information is intended as general information about the law and legal system. It is not to be considered as legal advice for your specific situation.