13 Aug Revocable Living Trusts – Terms Defined
If you’re new to estate planning, you may feel a bit of confusion about some of the words and labels used to a describe the different options available to you. Don’t worry, you’re not alone. At Phelps LaClair, located in Phoenix, Chandler, and Mesa Arizona, we try hard to simplify “Legal-Speak” and make it understandable and clear. Here is some information to help clarify and define the terms used when talking about Revocable Living Trusts, one of our mainstays in the estate planning process.
A REVOCABLE LIVING TRUST (RLT)
A revocable living trust is a legal, written document that holds title and ownership of your property and assets. The ownership of your property and assets is actually transferred to the trust, and that process of transfer is also known as funding the trust. An RLT can be modified or done away with at any time, hence, the term revocable. An RLT gives clear and thorough instructions on how property and assets will eventually be distributed to beneficiaries (see definition below).
The process of creating an RLT includes choosing a trustee (see definition below). That trustee is the person who owns and manages the assets of the trust. The RLT also names a Successor trustee (see definition below) and gives them detailed instructions on how to administer property and assets in the trust.
Finally, an RLT Is revocable while you are alive. But after your death (and, if married, the death of your spouse), it becomes irrevocable, meaning, it cannot be changed.
Defining Terms of Revocable Living Trusts
Grantor or Trustor: The person who establishes or creates the trust, also called the settlor. The grantor is the person who owns the estate assets. As the trust’s creator, the grantor has full control of the trust and can change it at any time.
Trustee: The trustee is the person who will manage the assets in the trust. The trustee is usually the same individual as the grantor, the person who creates the trust. For married couples, the husband and the wife typically act as co-trustees. Though these are the norms, it is possible, should you choose to do so, to name a child, a close friend—or even an institution—as the trustee who will manage your affairs while you’re alive.
Beneficiaries: The trust beneficiaries are the ones who benefit from the trust. During your lifetime, you (and your spouse, if married) are the beneficiary. Typically, when you (and your spouse) pass away, your children, loved ones, or specified charities become beneficiaries of the trust assets. While you are living these beneficiaries have no legal interest in the trust’s estate. The grantor has the sole power to change the beneficiaries during his or her lifetime, but once the grantor dies, the beneficiaries cannot be changed.
Successor Trustee: The person (or institution) who will manage your assets for you after you die or become incapacitated. The successor trustee will follow your written instructions and immediately have the same powers that you as the trustee had, to buy, sell, borrow, or transfer the assets inside the trust. For the benefit of the trust’s beneficiaries, the successor trustee also has the right to distribute the trust’s assets according to your written stipulations. The successor trustee does not have the legal right to change your trust.
Wrapping It Up
In setting up Revocable Living Trusts, it’s essential to use the right language for legal purposes. An improperly written document could conceivably invalidate the intended desire of the trust. That’s one reason working with a qualified legal firm is vital. If you live in the Phoenix Valley, feel free to contact our Phelps LaClair offices, located in Phoenix, Chandler, and Mesa. We’ll do our best to help you understand the sometimes complicated world of estate planning. And with our 40+ years of experience, you can rest easy that everything will be done with accuracy and excellence. Give us a call to schedule an appointment; our first consultation is absolutely free!
Images used under creative commons license (Commercial Use) (8/1/18) Trevor (Flickr)