For many clients, creating a living trust is a way to avoid the time and cost of probate. Each state has its own probate laws establishing the requirements for probate administration. If you are considering a living trust as part of your estate plan, it is important to understand not only how a living trust works, but also how it can be terminated, should you choose to do so. Our living trust attorneys are here to explain how.
First, what is a living trust?
A “living trust” is a particular kind of trust that goes into effect during your lifetime, as opposed to being created by your will after your death. As with other types of trusts, the property you place in trust will be managed by a trustee, and then distributed to your beneficiaries as you instruct. A benefit of a living trust is that you can name yourself to serve as trustee while you are alive, and then a successor trustee will take over when you die. Living trusts are valid in all fifty states regardless of where the trust was originally created.
The terms of a revocable trust can be modified
Because living trusts are revocable, you can modify the terms of the trust at any point while you are still alive and competent. Indeed, it is a good idea to review your trust agreement occasionally so you can make any necessary changes. This is especially true when you there are changes in your family circumstances such as the birth of a new child, marriage, divorce, or death. Your ability to amend or revoke your living trust is unlimited while you are still living.
If you decide to revoke your living trust, here is what you need to do
Revocation of living trusts only occurs rarely. The two most common circumstances are (1) a depletion of assets so that the benefits of a trust are no longer needed; and (2) a change in marital status. Someone with a single person trust may wish to create a joint trust with a new spouse and, in many cases, revoke the original trust. Likewise, when a married couple have created a joint trust and then get divorced, they will typically revoke the joint trust and create single trusts for themselves. It is important to note that there are numerous restrictions on a couples’ rights over their assets when they are in the midst of a divorce proceeding. Do not make any such changes without first getting advice from a qualified and experienced divorce or estate planning attorney.
If you are the Grantor, that is the person who created the living trust, there are four basic steps to follow when you want to terminate your living will. First, you must review the trust document you created to be sure that it is actually revocable. If the language of the trust document does not explicitly state whether it is revocable or not, ask an experienced and qualified estate planning attorney to help you make that determination. It will be necessary to check the applicable state laws.
The second step is to sign a notarized Revocation of Trust form. Next, send a notarized letter to your trustee stating that you have revoked your trust and that the trust assets should revert back to you. Finally, you may also need to transfer ownership of certain assets. For instance, you may have payable on death bank accounts which name the trust as the beneficiary. In that case, you must change the beneficiary designation with the bank.
Steps the trustee must take to terminate a living trust
If you are the designated trustee of a living trust, there are also certain steps that you must take to achieve the termination of a living trust. A trustee should always refer to the language of the trust document to confirm when the living trust should terminate. In most cases, there is no termination date, but instead a terminating event. For instance, a trust provision may state, “In trust for Catherine until she is legally married.” In that case, the trust would terminate upon the occurrence of that event.
Once the termination date has been determined, then the trust funds need to be transferred to the trust beneficiary at that time. Finally, if necessary, title to certain property will need to be transferred from the trust’s name to the named beneficiary. The trust will officially terminate once all the property of the trust has been distributed to the beneficiary.
Some of the most common living trust benefits
One of the most widely-recognized benefits of having a living trust is that your estate does not have to go through probate. Living trusts help avoid the time and expense of probate. They also several tax advantages, including lowering the potential for estate taxes. A living trust allows for more privacy than a will, for instance, which must go through the probate process, which is a public proceeding. Living trusts provide more legal protection than a will, as well.
Download our FREE estate planning checklist today! If you have questions regarding living trusts or any other estate planning matters, please contact us at the Northern California Center for Estate Planning and Elder Law for a consultation. You can contact us either online or by calling us at (916) 437-3500. We are here to help!