Living Trusts Require Management
Living trusts have become a popular device for avoiding the cost and expense of probate.
But nothing is as cheap and easy as it seems. There can be severe headaches if you don’t take the proper steps to follow through in the management of the trust.
First, a brief refresher course: A living trust is a legal entity into which you can transfer all or some of your assets. When it is created, typically you name yourself as trustee, and in that capacity you control the property in the trust. After your death, the person you selected as the “successor trustee” takes over control of the trust, and in the basic version, then distributes the assets in accordance with the instructions in the trust document. A husband and wife may be joint trustees.
Actually, living trusts have been around for quite a while. Harvard law professor Austin W. Scott observed in a law review article in 1936 that “there had been a great increase in” living trusts then.
One of the features of the typical living trust is that it is revocable. You can, if it says so, change it from time to time. You can also put property into the trust or take property out of it.
There are at least two important documents in the usual trust. There is the trust instrument--the document, often 10 pages or more, that sets out the terms of the trust, names the trustee and the beneficiaries and sets up the rules. The second document, usually attached as an exhibit, describes the property transferred into the trust.
It is very important to make sure that you take the steps necessary to actually transfer the title of property into the trust. For example, on a deed to your house, you would have to change ownership from you to the trust.
It is also important to clear title to trust estate property and make trust distributions after the death of a family member. For example, in the typical situation, a husband and wife have prepared a living trust. The family home is transferred to the trust, and later one spouse dies. Thomas E. Stindt, an attorney and frequent correspondent to Legal View, notes that problems can arise later if the appropriate steps are not then taken. “Regrettably but frequently, nothing is then done in the way of deeding the property out and terminating the trust,” he said.
After much time has passed, other circumstances may intervene, perhaps a second marriage or the death of the surviving spouse. Then expectant heirs may face “unanticipated extra expense and time delays and even worse,” Stindt said.
It is a good idea for each person who has a revocable trust to review it regularly, prepare an updated inventory of the property and consider whether property should be added or removed.
There is no legal requirement that you review your trust or manage it in any particular way, and the frequency of such a review will depend on your own circumstances, but doing this is one effective way to maintain the legal health and vitality of your trust.
