A REVOCABLE LIVING TRUST is a document created during one's lifetime similar to a Last Will & Testament ("will"). The person who creates the trust is often called "trustor" or "settlor" or "grantor." In revocable trusts, trustors are often referred to as "grantors." In irrevocable trusts, trustors are often referred to as "settlors." The trust document will also name a manager of the trust and this person is called the "trustee." Often the trustor of the trust names himself or herself as the initial trustee. The trustor will also name a back-up trustee to manage the trust in the event of the trustor 's incapacity or death.

A "living" trust is simply a trust which is created during one's lifetime and begins to function when assets are retitled into the name of the trust (the trust is "funded"). A "testamentary" trust is a trust created under a Last Will & Testament and comes into existence only at death and at the end of the probate administration.

In a "revocable" trust, the trustor retains the power to amend or even revoke the trust entirely. Amendments to trusts are similar to codicils to a will. Trustor's power to amend or revoke a living trust ceases if the trustor becomes incompetent. An "irrevocable" trust may not be amended or revoked and is often used to remove assets from one's taxable estate.

Married persons often have a joint trust, in other words both spouses are co-trustors. Often they are also co-trustees as well. If one of the spouses becomes incompetent, that spouse is still a trustor, but can no longer serve as one of the trustees. The other spouse will continue to act as sole trustee, unless another trustee is added. If both spouses become incompetent or at their deaths, the successor trustee will manage the trust.

Well-designed trusts build in a great deal of flexibility in order to deal with situations which may arise in the future. Well-designed trusts contain clauses which allow the trust to adapt to new situations. While some clauses may seem like excess baggage, if such provisions do become applicable due to any given factual situation arising in the future, they can prove to be very helpful. Otherwise, the trustee might have to petition a court for instructions in any given situation and this can be very expensive. It is better to plan for many contingencies than to be short-sighted.

Trust law has a long history of validating "continuing trusts" to protect children or grandchildren who may not be prudent with money. Being a bad money manager does not make one a bad person. For example, Renoir was a spendthrift and died penniless. He was also one of the greatest painters who ever lived.

Today, many trustors are concerned not only about their child's or grandchild's ability to prudently manage an inheritance but they are also concerned about threats to the inheritance from potential future creditors of the child or grandchild. Today the greatest threat to inherited wealth may not necessarily be estate taxes but rather divorce or some other litigation. Therefore, trustors are designing trusts, which continue in further trust after their death, for the benefit of children and grandchildren and which are also designed to protect against their creditors. One cannot create a revocable trust (in contrast, see discussion regarding DAPT and OAPT irrevocable trusts in following sections) which will shelter assets from one's own creditors, but one can design a trust which continues after trustor's death for the benefit of children and grandchildren which will shelter the inheritance from their potential creditors. For more background on the structuring of such trusts see Designing an Asset Protection Trust for a Child or Grandchild, a presentation given by Mr. Nichols in March, 2012.

Good family stewards undertake careful planning for the benefit of their loved ones. For the rest there is probate.

Contact us to discuss establishing a Revocable Living Trust.