Getting the most out of your estate plan will require you to do more than simply execute a Last Will and Testament. First, you will need to decide on additional estate planning goals and objectives that you wish to include in your plan. Then you will need to incorporate additional estate planning tools and strategies into your plan in order to achieve those goals and objectives. One of the most common estate planning goals that people choose to include in their comprehensive estate plan is incapacity planning. Although every incapacity plan is unique, one estate planning tool that is frequently used in association with incapacity planning is a living trust. If you are unfamiliar with living trusts, learning more about how a living trust works may help you to understand how it can be used as an incapacity planning tool.
All trusts start out with the same basic elements and the same basic concept. A trust is a relationship whereby property is held by one party for the benefit of another. A trust is created by a Settlor, who transfers property to a Trustee. The Trustee holds that property for the trust’s beneficiaries. The Settlor of the trust appoints the Trustee. Sometimes, the Settlor is also the Trustee or the beneficiary of a trust. A beneficiary can also be another individual, an entity (such as a church), or even the family pet.
Testamentary vs. Living Trusts
Trusts can all be divided into two broad categories – testamentary trusts and living trusts (formally referred to as “inter vivos” trusts). A testamentary trust is a trust that does not activate until the death of the Settlor. Typically, the trust is activated by a provision in the Settlor’s Will. A living trust, on the other hand, becomes active as soon as the formalities of creation are complete.
Revocable vs. Irrevocable Living Trusts
Living trusts can be further divided into revocable and irrevocable living trusts. As you might imagine, a revocable living trust is a trust that can be modified or revoked by the Settlor at any time and without the need for a reason. Conversely, an irrevocable living trust is a trust that cannot be modified or revoked by the Settlor once the trust has been activated. Because a testamentary trust is activated by a provision in the Settlor’s Will, which can always be revoked, a testamentary trust is always revocable up to the time it becomes active.
Using a Living Trust as an Incapacity Planning Tool
One of the goals of an incapacity plan is to decide ahead of time who will take over control of your assets in the event of your incapacity. Not only do you want to be the one to decide who will take over, but ideally, you also want the shift in control to be as effortless and efficient as possible. A revocable living trust can accomplish just that.
A revocable living trust works as an incapacity planning tool by first allowing you to create the trust and appoint yourself as the Trustee of the trust. At the same time, you appoint the person you wish to take over for you in the event of your incapacity as the successor Trustee of the trust. All major and/or important assets are then transferred into the trust. As the Trustee of the trust, you are able to continue to manage, buy, sell, or encumber those trust assets as long as you are competent to do so. If, however, you become incapacitated, the successor Trustee takes over as Trustee according to the terms of the trust. This allows control over the trust assets to shift as effortlessly as possible to the person of your choice. Moreover, because you are the Settlor of the trust, you can even use the trust terms to define under what conditions the successor Trustee will take over as Trustee. Using a living trust in your incapacity plan ensures that you are able to decide who takes over for you should the time come that it is necessary to shift control and avoids the need for court intervention.
For more information, please download our FREE estate planning worksheet. If you have questions or concerns about using a living trust for incapacity planning, contact an experienced estate planning attorney at the Law Offices of Kobrick & Moccia by calling 800-295-1917 to schedule your appointment.