A Living Trust is also called an Inter-Vivos Revocable Trust – what you need to know.

In this episode, Lisa Shoalmire and John Ross discuss the ins and the outs of Living Trusts and what it means to you!

Episode Transcript
Lisa
Welcome everyone, to another edition of Aging Insight. I'm Lisa Shoalmire and I'm here today with my co-host John Ross and we're elder law attorneys here in the Texarkana area. Elder law is an area of law that brings all together the things that seniors most often need when it comes to seeking legal advice and the ramifications of the decisions that they make. And in prior episodes we've been talking a lot about the kind of legal documents that seniors need to make sure they have in place and the effect of those documents and we were able to do an episode a while back on the last will.
Lisa
And that's a very common question that we get. But one of the other type of documents that we get a lot of questions about is something called a living trust, or a revocable trust. Two words for the same thing. Living trust and revocable trust. So today, John and I wanted to give you some information about what that living trust or revocable trust is, because I know you've heard about it and if you haven't, I know you will. So John, what is a living trust?
John
Well first, I think we've got to back up. As with so many things, the law is just complicated. I gave a speech the other day and there was a gentleman there in the back row and he raised his hand. I called on him and he said, "John, when should I get a trust?" Well, what I said to him was what I would say to anybody, which is, "The word trust is kind of like the word surgery." There's lots of different types and the one that's appropriate for you depends on what ails you; What's wrong with you? What's your situation? What your life dictates.
John
There are lots of different types of trusts that are all used to solve different types of problems. Now, by and large the most common type of trust is what's called an, the full legal name would be an inter-vivos revocable trust. Now, that's a whole bunch of legal stuff but all that means is it's something that you've created while you're alive, and that you retain the right to change or amend or even revoke the terms of it. So that's what a revocable trust is. The question is, what are the parties to a trust?
Lisa
Right. So when we talk about a trust, a trust is a legal being. In some ways, kind of like the way you think of a corporation, a legal being. And there's a creator of that trust and that is a person that's called a grantor or a settlor. So there's the person who creates the trust and put assets into the trust, and then there's the person who manages the trust, and that person is called the trustee.
John
That's right. And then you've got, of course, the beneficiary. That's the last key to all of this. So, every trust, no matter which trust it is that you're talking about, has a grantor, the person who creates it, trustee, the person who's in charge of it, and the beneficiary, the person who receives the benefit of it. Now typically, with a revocable trust, which also is known as a living trust, as we go through this program you'll see us use those terms back and forth, the typical trust like this...
John
For example, if I was gonna use it for myself I would be the grantor, so I'm the one creating it. I would be the trustee, I'd be the person in charge of it, and I would be the beneficiary. In other words, this is a tool to where you can use your assets, still be in control of your assets, and manage them for your own benefit.
Lisa
Well you know John, and when you put it like that, where you are the creator of the trust, the grantor, the manager of the trust and also the beneficiary of the trust, well, that seems like a whole lot of hoops to jump through just so you can manage and use your own stuff. [chuckle]
John
Right, and it does. Except that, the purpose of doing this, a trust is created by a written document, a trust agreement. And really again, these are just fancy words. All it is, is a stack of paper. But these are the rules. These rules govern how that trust is going to run. And so there's really two reasons, two primary reasons that you're gonna do all of these. One is, management of the assets while you're still alive. And two is, passing those assets on at death. And inside all of this trust language that has been put on to these pieces of paper is going to say, "What happens with these assets while you're alive? And what happens to them when you die?" And there are advantages and disadvantages to using this trust, this type of trust for that sort of thing.
Lisa
Well, and so I think we can summarize when we talk about this revocable trust or this living trust, that it's a management tool.
John
That's right.
Lisa
It's a management tool to manage your assets. And John, you talk about one of the reasons you do that is to manage those assets while you're alive. Well, I can manage my own assets just fine without signing a stack of paper that says I have a trust. So what would encourage me, why would I want to go through all this to sign those papers, to manage those assets while I'm alive?
John
Right. So if a trust is set up, then that trust typically is going to be... Your assets are gonna be in the name of that trust. So for example, again if we're talking about the John Ross trust, then there would be a bank account that would be in the name of John Ross, and maybe CDs in the name of John Ross's trust. And maybe real estate in the name of John Ross's trust. And yes, I'm the trustee. But when I create this trust, I'm gonna name successor trustees. So that if I become incapable of managing it for myself, these successor trustees can step in and manage them for me.
John
Now, they have to follow the terms of the trust. And so if the terms of that trust say that they have to be used for my benefit, then that's what they have to do. Now, if you're really sharp out there you're saying, "Hey, that sounds a whole lot like a power of attorney." And it can be. And in fact, I think what we'll do is we'll take a quick break. And then when we come back, we'll talk about management of that asset as a trust versus using a power of attorney.
John
Welcome back to Aging Insight, everybody. I'm John Ross here with Lisa Shoalmire. And today, we're talking about the revocable trust or also known as the living trust, probably the most common type of trust that there is out there. And we started out by talking that all trusts have a grantor, the person in charge, a beneficiary, the person that receives the... Sorry, grantor, the person who creates it.
Lisa
I was gonna catch you.
John
The trustee, the person in charge, and the beneficiary who receives the benefit of it. That's every trust. And then typically with this type, you as the person who creates this trust are all of those three people. You are the grantor. You are the trustee. You are the beneficiary. And so you're managing your own assets for your own benefit. But should you become incapacitated, then you have named successor trustees. And those successor trustees are able to step in, and manage those assets for you while you're still alive. Now, that may sound very similar to say, a power of attorney. So Lisa, why would somebody wanna use a revocable trust as opposed to a power of attorney to allow somebody to manage their assets down the road?
Lisa
Well, one reason is while we certainly endorse that everyone over the age of 18 should have a durable power of attorney for business. They can be a little clunky, I guess you'd say when it comes to getting third parties, such as some of our big banks that... We've got a lot of banks, they're not as local as they used to be. So we've got these big national banks and a lot of times, if you become incapacitated and your agent under your power of attorney shows up at the bank with the power of attorney document, sometimes you've got to jump through a few more hoops before your agent has free reign to act under that power of attorney the way you intended.
Lisa
A trust, once it's signed, once the trust documents are put together and the rules about how to manage your trust are already written down, the successors who can help you manage your property are already listed. A lot of times this creates a more seamless and timely transition from you, yourself managing your assets to where you've had a crisis of some sort and now your successor needs to step in and manage. So a trust, on the one hand, usually that management can transfer from one person to the other more quickly and a lot of times, these outside third parties, they just feel a bit more comfortable with the trust documents.
John
That's certainly been my experience as well, is that oftentimes banks, particularly out of state or banks that are... Insurance companies, things like that, that are based out of New York or big cities like Chicago, and Los Angeles, they are more comfortable with an asset that has been in the name of their trust for some period of time, leading up to now the person who was the trustee is incapacitated and their child or whoever that successor trustee is is able to step in. Oftentimes these institutions already had a copy of the trust in their possession, they were prepared for this sort of thing, and so it can make it quite smooth.
John
So one is management of those assets while you're alive. And again it's not necessarily right for everybody. In many cases, for many people, just having the power of attorney is enough. That's really all you need. But in other situations, using that trust for management purposes can be appropriate and can be more appropriate than just the powers of attorney. The other reason and probably the more common reason that people use a revocable trust is to plan for transferring assets at death.
Lisa
Yeah that's right, this trust in many ways is what I would call a will substitute. So a living trust is often divided, you'll see a couple of sections of the trust, will have a section that is actually titled 'Management of my property while I'm alive' and then there'll be another section of the trust that will say 'Management of my property' or 'Disposition of my property at my death'. And so we could just go to the trust and look at your provisions that you already have in place that at your death, how do you want property that is being held in your trust, how would you like that distributed out to your heirs and beneficiaries.
Lisa
The key that so many people like about this aspect of the trust, that is the transfer of your property at death aspect, is that first and foremost, a trust is a private document. Under almost no circumstance that I can think of, do you have to file a trust down at the court house for everybody to see in the records. So most folks really like the idea that whatever transfers they make at death, whatever decisions they've made about distributing property, that those decisions remain private.
Lisa
And then the second reason, John, that we see a lot of people like using a trust at death is... On a previous episode of Aging Inside, we talked about probate transfers that were property passes under your will and non-probate transfers or assets passed outside your will. And using a trust is another way to pass these assets outside a will and most importantly, outside the grasp of certain creditors.
John
Right. So a lot of times people would use that trust, again, as a probate avoidance tool. A way to have a non-probate type transfer. Now, when we talked about management, we said "Well yeah, but you can also manage the asset with a power of attorney," and that's true, you can. And if I have a CD at the bank and I wanted to avoid probate on that CD, I could for example, name my three kids as the beneficiary on that, if I had three kids. And that also is a non-probate transfer. If that CD were in the trust and the trust said that upon my death, everything goes to my three kids, that also is a non-probate transfer.
John
So why would I want one over the other? Well, because that trust agreement. For example, if I go and name the three kids on that CD, and one of those kids dies, well does their share go to their kids? Maybe, maybe not, probably not because it's probably just gonna go to the other two surviving named beneficiaries. But if in my trust I say that I leave everything to my three kids, I'm probably also going to say that if one of my children predeceases me that their share would go to their kids, if that's what I want. Or if I don't want that, then I would say that it goes to my church or whatever. But I'm gonna be able to say that in that trust and it's gonna be flexible, it's gonna flow with the changes in my life better than just naming beneficiaries.
Lisa
Well, that's right. And there's a couple of other key points I'd like to talk about in using a trust agreement to pass assets at your death and we'll take a break and come back and talk about those.
Lisa
Welcome back to Aging Insight. I'm Lisa Shoalmire and I'm here with John Ross. And today we've been education you and giving you information about what a living trust is. Also known as a revocable trust. And we talked about that this type of trust is really a management tool for your property, so that your property can be managed in the way that you direct while you're living and then it also acts as a management tool to disperse your property at your death. And, John, before the break we were talking about some advantages of using that trust agreement and that trust to disperse property at death, and what are a couple of other advantages that we have?
John
We start out by talking about the fact that, yes, it does avoid probate, but not only does it avoid probate, but we are going to plan inside that trust for these other contingencies, like what if the assets should, for example, fall in the hands of a minor? Maybe your child has passed away, but it's gonna go to a grandchild and that grandchild is under a certain age. Well, that trust should have already planned for that and there should be some provisions in there about what. Or what if a child is in the nursing home, for example, and receiving Medicaid? Well, we need to protect that child. And what if... So there's lots of things that we can protect not just you while you're alive, but these other kids later on down the road.
Lisa
Well, and I have one that is fairly common and people don't like to talk about it much, but what if your intention is that you want to pass your assets down to your children, but maybe one of your children has selected a spouse of their own choosing that you're not real happy with or you're not comfortable with, or you're concerned that the assets that you pass to your child will essentially fall into the hands of this son or daughter in law that you don't care for too much? A trust is a way to manage those assets to make sure that your child benefits from those assets and that those assets can not be squandered by your child's spouse or their creditors.
John
That's right. Now one other things about using a trust, and this is probably one of the most important, particularly in this part of the country. We sit here on the state line and what a lot of people don't realize, for example, is that a Texas court has no power to deal with property located, let's say, in Arkansas. And an Arkansas court doesn't have any power to deal with property located in Texas. And so, imagine you live in Texas, where you own a home, but let's say you also own a rent house, for example in Arkansas. If you had planned your estate with a will, not only are you looking at probating that will in your primary state of residence, Texas in this case, but then since Texas can't deal with that Arkansas property you're gonna have to go and probate that will again in Arkansas. And if you own property in Oklahoma, or Louisiana, you might end up doing multiple probates in each one of these jurisdictions.
Lisa
Yeah. So essentially what happens is, and every probate process takes a little time and it certainly takes a little money, so every jurisdiction that we have to go to to probate a will costs you time and money. So we can avoid that. Not only can we avoid a probate but we can avoid multiple probates, if we instead title the property in the various states into a trust. Once again, it's a management tool, that trust is going to be able to manage the title to the property in the various states.
John
Right. Now, if you've been listening to all of this, you may be getting the impressions that trusts are a very good tool. They are. Are they appropriate for everybody? Absolutely not. This is something that is appropriate for some people but not others. And, anybody that is ever telling you that it is the most appropriate thing for everybody, you should be avoiding very carefully. The use of living trusts and revocable trusts as a scam tool, a way to get access to your financial assets is one of the leading vehicles out there for scammers. So, if you're thinking about using a revocable trust or a living trust and your estate planning, one thing I would caution you is to get really good advice from trusted sources. You can always visit for example, the National Academy of Elder Law attorneys and look up elder law attorneys who typically will be very familiar with this sort of thing.
Lisa
Well, and John, and on that note, a lot of times we'll see folks from out of town come in and put on seminars, and invite you to dinner, or breakfast, and really talk about all the advantages just like we've talked about today of using trust planning. And while the information they're giving may be accurate, you really wanna deal with folks who are local that you have dealt with in the past or that you know that your friends and family have dealt with, and not a fly-by-night operation. That says scam.
Lisa
Well, John, and we certainly welcome your input on Facebook or your call-in on our radio program. That helps us to know what questions and issues that you wanna learn more about. So, feel free to give us a ring about that.
John
That's right. Ultimately, this program is for you and we wanna be able to field your questions. We need to know if there's something that we talk about here on the show and we're not quite covering it, you still have questions left, get out there, find us in the street. You see me in the grocery store, let me know what question you want answered, and the next time I'm here, we'll answer it for you.
Lisa
Alright. See you next time.

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