Putting Trust in Your Estate Plan
By Rick Imhoff, CFP
Over the past several years, the revocable living trust has become an increasingly popular estate planning tool. This legal relationship is governed by a trust agreement and among three parties; the grantor, beneficiary, and trustee.
The grantor is the person who creates the trust and decides, with the help of an estate planning attorney, what the terms of the trust will be. The grantor, as long as he or she is alive and competent, is the “boss”, meaning the grantor can instruct the trustee to buy and sell assets, make distributions to the grantor or someone else, and can amend or terminate the trust.
The beneficiary is the person who receives the benefits of the trust. The grantor, during his or her lifetime, is typically the beneficiary. Upon the grantor’s death, the beneficiary changes to the individual(s) and/or charitable, religious, or not-for-profit organization named in the trust agreement.
The trustee is the manager of the trust. If the grantor is alive and competent, and is able to manage his or her own financial affairs, will typically name themselves as the trustee. The trustee is responsible for paying bills, investing the assets of the trust, and handling all other financial matters. In the event of the grantor’s death or incapacity, then a successor trustee (named in the trust agreement by the grantor) will take over the management of the trust. The successor trustee must adhere to the terms of the trust agreement as specified by the grantor.
The reason many people choose a revocable living trust as their primary estate planning document is to avoid probate at death. Any asset titled in the trust’s name at the grantor’s death avoids the cost and delay of probate. The successor trustee is able to distribute the assets of the trust more quickly without the supervision of the probate court.
However, one of the major benefits of a trust often times overlooked is that it avoids probate if the grantor becomes incapacitated. The successor trustee is able to manage the grantor’s affairs, within the guidelines of the trust agreement, without supervision of the probate court.
Another benefit of the revocable living trust is that the grantor has total control over the trust assets during his or her lifetime. This means that the grantor can conduct their financial business much like they can as if the assets were titled in their sole name.
It is important to involve several professionals in the estate planning process. This team of professionals should include an attorney, accountant, trust officer, and insurance agent. This group of professionals is very important in developing a workable estate plan centered on a revocable living trust. It is especially important for business owners, depending on the structure of their business, to work with all these professionals because of the special tax consequences that must be considered when using a revocable living trust.
To determine if a revocable living trust can work in your situation, you should consult with professionals who specialize in estate planning. In most cases, there is no charge for initial consultations with these professionals and they can assist you in examining all the options available to you.
Rick Imhoff, CFP®, is Senior Vice President & Senior Trust Officer for MidAmerica National Bank. He can be reached at 309-647-5000, ext. 1130 or by email.
Investments are not FDIC-insured, hold no bank guarantee, may lose value, are not a deposit, and are not insured by any federal government agency.