A trust is a legal arrangement involving three parties. The grantor places assets in a trust, which is administered by a trustee for the benefit of the beneficiary. One person can play all three roles, depending on the trust.
A revocable living trust, created during the grantor’s lifetime, can be revoked, meaning the grantor still has control over the assets.
In the case of revocable living trusts, the grantor is often the trustee and the beneficiary. In other words, the grantor gives property to himself or herself as trustee and agrees to administer it for his or her own benefit as beneficiary.
A revocable living trust is frequently a suitable choice for a person concerned about losing the ability to manage his or her assets. Simply stated, if you become incapacitated, the provisions in a revocable living trust could allow the person named as successor trustee to take over custody of all the trust assets, managing them on your behalf. This would ensure that the owner’s bills are paid, and legal obligations met.
There are a few drawbacks:
- The grantor of the trust may forget over time to transfer assets to the trust, resulting in the successor trustee having no authority to manage those assets.
Some assets — such as qualified retirement accounts — cannot be transferred to a revocable trust for management by the successor trustee without triggering tax or other penalties. Be sure to confer with your wealth and tax advisors before retitling assets to fund the trust.
If all assets were held as single-ownership property, there are two alternatives for managing those assets:
- If the property owner executed a durable power of attorney, then the agent under that power may be able to manage the assets on behalf of the property owner.
- If the property owner does not have a power of attorney that is accepted by the institution, then a guardian or conservator must be appointed for the property owner. This is typically an expensive, time-consuming procedure, requiring supervision and reporting to court on a regular basis.