A trust is an estate planning tool that is primarily used for individuals who wish to avoid probate and streamline the administration of their estate. Trust administration is informal, meaning that ordinarily there will be no court involvement. If properly funded, a Trust can save your loved-ones time and money in administering your estate.
Revocable Living Trusts
Trusts come in all different shapes and sizes. Some trusts are set up for a particular purpose, such as planning for the care of minor children or persons with disabilities. Other trusts are created to help a person qualify for means-tested benefits such as Medicaid. However, the most common way to set up a trust is a revocable living trust.
A revocable living trust creates a new entity for the purpose of owning and managing a person’s assets. This includes all personal and real property the individual owns. With a revocable living trust, the person who creates the trust (Settlor) can retain full control over the trust and can amend or revoke the document at any time. A revocable living trust will generally provide for the Settlor’s care and expenses during their lifetime, and then direct distribution of assets to a group of designated beneficiaries upon the Settlor’s death.
In most cases, the Settlor will be the Trustee of their trust during their lifetime. The trust will name a successor trustee to take over upon the Settlors death. This person can be a professional fiduciary, or just someone the Settlor trusts to make responsible decisions.
How Does a Trust Avoid Probate?
Once the trust is created it must be funded. A trust is funded in two main ways: (1) transferring title of the asset to the trust during the individuals lifetime and (2) adding the trust as a beneficiary on an account so that the asset is funded upon the death of the account-holder. (click here for a more in-depth discussion on funding trusts) If the trust is properly funded, the individual will no longer retain any assets in their name at their death. To put differently, upon the individual’s death, the trust avoids probate because all assets are owned by the trust.
It is important to remember that assets held in a revocable trust still count as part of a person’s gross estate, and thus are subject to the Oregon and Federal estate tax exemption limits. (click here for a more in-depth discussion on the Oregon estate tax)
Once the successor trustee has taken control of the trust assets, they will notify the beneficiaries of the trust’s existence and basic terms of the trust. The successor trustee will then be responsible for filing final tax returns for the Settlor and paying off any debts such as funeral expenses or outstanding bills. Once all debts and taxes are paid, the successor trustee will distribute the trust assets as described in the trust.
To learn more about trusts and see if a trust is right for you, call or click here to schedule a consultation with one of our attorneys!