What is a Revocable Trust – Trust Planning in Two Stages

Welcome back to another episode of The Estate Planning Podcast. I’m your host Colby Kukelski. In this week’s episode, we’re going to be discussing a trust what a trust is and when it can be used. If you’ll recall from our episode last week, we spent some time discussing Wills. What Wills are and Wills requiring probate. So after that, you may have a question of well, how do I avoid probate. That’s what we’re going to focus our conversation on this week.

Typically, when people hear the term trust, they think these documents are meant for celebrities or people with a lot of money. What we typically like to say is that a trust can be used for all of your stuff, whether you have a good bit of stuff, where you whether you have a little bit of stuff a trust can be used by pretty much anyone. I’ll tell you, in most instances, you can make an argument that a trust would make more sense for some families versus a Will. The primary difference between a Will and a trust is that a trust is actually activated while you’re alive. Whereas a Will is activated once you’ve passed away by the Probate Court. So when using a trust, since it’s activated while you’re alive, it wouldn’t require probate. So if you’re recall from our conversation last week, all Wills must be probated. But a trust doesn’t have to be probated.

There are many different types of trusts, and there are many reasons why you would use a particular type of trust. For our conversation today, I’m just going to focus on a revocable trust, sometimes known as a living trust. This is probably the most common type of trust we typically run across. With a revocable trust, its intended purpose is to ensure that (1) we’re avoiding probate and (2) the assets are organized ahead of time. So if something should happen to you, your successor trustee could step in and manage the assets, and then (3) your family having a stand in for you. So again, if you’re no longer here, that trustee already knows what to do. By having a trust, we do a lot of work ahead of time to ensure if something should happen to you, the tools are already in place to help your family through the next steps.

You heard me mentioned the role of a trustee. Typically a trustee is someone that you trust. So a lot of people think this has to be a corporate trustee, a bank or financial institution. And in most cases, I’ll typically recommend against that. There is a reason why you would want someone that is intimately familiar with your family and your assets to serve in this role. The role of the trustee if something should happen to you, is to essentially administer the trust or doing what the trust says. So again, if it’s to be equally divided between the kids, the trustee is the person responsible for effectuating that decision. When creating a trust, you are typically the trustee during life, meaning you are 100% in control, the assets are yours to use, you could spend to the principal you can spend the income, it is business as usual. Whereas if something should happen to you, that successor trustee can immediately step in, and then begin administering the trust from that point forward.

In order for your trust to work correctly, I typically say trust planning is in two stages. Stage one is actually putting you know the documents in place making those important decisions about you know where the assets go, something should happen, who that successor trustee is and then signing the actual documents. But the other side of trust planning is just as equally important, and that’s what I call stage two, and that is funding the trust. Again, with a trust. Our goal is that all of your assets are somehow some way tied to this place. So if something should happen, everything’s already pre organized. All your trustee has to do is step in and then administer the trust.

Well, how do we do that? Funding the trust is of particular importance. And again, yes, when you sign the documents, you have a trust in place. But in order to make sure that that documents actually doing what you intended for them to do, you need to make sure that all of your assets are tied to this trust. That’s where we discuss, you know, ensuring that there’s appropriate beneficiary designations on your assets. Whether that’s bank accounts, brokerage accounts, life insurance, IRAs, 401, K’s, we want to make sure each and every asset that you have is somehow some way tied to this trust.

So when we think of trust planning, I always say it’s in two stages, stage one, signing the trust, making sure that it’s in place, stage two, making sure that those assets are actually tied to this trust plan. So to recap, a trust can be used in place of a Will, a trust is activated during your life, you become trustee. All the assets are then tied to this trust. The trust says what happens with these assets, if something should happen to you, we name a successor trustee. So again, if something should happen to you, we already have that trusted individual named who can immediately step in and then administer the trust.

When you’re using a trust, for most families, what we’re intending to do is just to make things easier, easier for surviving spouse, easier for the kids. So if something should happen, they aren’t having to worry about petitioning the Probate Court and opening the estate. All the work is done ahead of time. So if something should happen to you, it’s just much simpler for your family. For most families, that that’s what they’re truly looking to do with estate planning. They want to make sure that there’s a plan in place, and that plan is as simple as it can be.

Again, there are many different types of trusts. There are many different reasons to use a particular type of trust. This conversation today just focuses on our very basic revocable trust, sometimes known as a living trust. Anytime you think of a trust, remember, it really takes two stages. Stage one, signing the actual trust and then stage two, ensuring your assets are tied to this plan.

This has been a great conversation today to get us started in the world of trusts. Make sure to join us back here next week, we’re going to focus on some of the most commonly asked questions in regards to estate planning. I look forward to seeing you then. Bye, guys.

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