In this article...
Why is a trust the most popular estate planning technique? In this Learn About Law article we talk about Revocable Living Trusts and how they're used in an estate plan.
In this article we will explain revocable living trusts in Illinois. We will answer the following questions:
- What is a revocable living trust?
- Why is a trust the most popular estate planning technique?
- What does a trustee do?
- What happens if the grantor of a trust becomes mentally incompetent?
- How does a revocable living trust avoid probate?
- What is the difference between a revocable living trust and a will?
What is a Revocable Living Trust?
Revocable living trusts are estate planning documents that, like a will, are used to state the creator’s wishes as to the disposition of his or her property after he or she passes away. Unlike a will, a revocable living trust is a legal entity that can own property.
Because of this feature, trusts have many benefits that wills do not, such as:
- allowing the creator’s estate to avoid probate when he or she passes,
- allowing the creator to have long-term control over how the assets are managed for the benefit of the trust beneficiaries after her death, and
- providing for management of the creator’s assets in the event of the creator’s mental incompetence.
Why is a trust the most popular estate planning technique?
- Your loved ones will save thousands of dollars in attorney fees becaus your estate will not go to probate court.
- Your spouse and children will have immediate access to your assets rather than having to wait a year or longer while your assets are tied up in probate.
- If you are incapacitated, your spouse or children will be able to immediately access your assets for your benefit without the need for a costly and lengthy guardianship proceeding.
- You will retain complete control of your assets during your lifetime.
What Does a Trustee Do?
The person who creates a revocable living trust is known as the grantor. The grantor will name a series of trustees who will act in succession to manage the assets of the trust according to the trusts terms for the benefit of the beneficiaries named in the trust.
During the grantor’s lifetime and while the grantor remains mentally competent, the grantor will be both the trustee and the beneficiary of the trust. This means that the grantor’s only obligation as trustee is to manage the assets owned by the trust for his or her own benefit as he or she sees fit. For this reason, when you transfer your assets from ownership in your individual name to ownership by the trust, you will not notice any practical difference. Grantors retain full control of any assets owned by their trusts.
What Happens if the Grantor of a Trust Becomes Mentally Incompetent?
If the grantor of a trust becomes mentally incompetent either through old age, sickness, or disease, the role of trustee will pass to the first person named by the grantor as a successor trustee who is willing and able to act in that role. All that is needed for this to occur is a doctor’s certification that the grantor is no longer competent to manage his or her own affairs.
The successor trustee will now be responsible for managing the assets of the trust for the benefit of the grantor during the remainder of the grantor’s lifetime. In the absence of a revocable living trust or a power of attorney, a guardianship proceeding would be necessary to grant the ability to manage the disabled individual’s affairs. These can often be costly, time, consuming and stressful for the disabled individual’s family.
How Does a Revocable Living Trust Avoid Probate?
Probate is a court case during which the court oversees the executor’s or administrator’s gathering and distributing of a deceased person’s assets. In Illinois, probate is typically required in order for a deceased person’s assets to be distributed to beneficiaries and heirs if the deceased individual owned any real estate or more than $100,000.00 in non real estate assets. For more on this, check out our article: When is Probate Required in Illinois?
We want to avoid probate if possible for three primary reasons:
- Probate cases take at least a year to complete. During this time, the deceased individual’s loved ones and intended beneficiaries of the estate may not have access to the assets that are intended for them;
- Probate is a court case. This means that the executor will typically hire an attorney. Attorney fees and court costs may consume 5% to 10% of the value of the estate.
- Probate can be time-consuming and stressful for the executor and the deceased individual’s family members.
We help our clients avoid probate by transferring any real estate they own as well as major savings accounts to their trust. They do not lose any control over these assets during their lifetimes. However, the assets that they transfer to their trusts will not be part of their estate when they pass away for the purpose of probate.
The goal is to ensure that the client does not own any real estate outside of his or her trust and owns less than $100,000.00 of other types of assets outside of his or her trust or payable on death accounts when he or she passes. If this is the case, then probate will not be necessary.
Instead of going through a probate case, the trustee named in the trust will be able to distribute assets immediately to the trust beneficiaries without the need to hire an attorney. The trustee will do this by showing a copy of the trust, the grantor’s death certificate, and a document called a Small Estate Affidavit to the financial institutions responsible for the grantor’s accounts.
What is the Difference Between a Revocable Living Trust and a Will?
Both a will and a trust allow the creator of the document to state how he or she would like his or her assets distributed when he or she passes. However, unlike a trust, a will does not allow the creator’s estate to avoid probate.
If a deceased individual had a will but not a trust, a probate case will typically be opened and the deceased person’s assets will be fully distributed according to the terms of the will at the conclusion of the case. If one of the heirs is a minor child, the assets will typically be distributed to the minor’s guardian.
A trust, on the other hand, allows long-term control over assets. If the terms of the trust dictate, the trust assets may be distributed immediately to the beneficiaries. However, many of our clients choose to have their successor trustees manage trust assets for the benefit of their children until the children are old enough to responsibly manage them on their own.
Parents of young children typically choose to allow their children to demand payment of ⅓ of the balance of their trust upon reaching the age of 21, ⅔ upon reaching the age of 25, and the rest of the balance upon reaching the age of 30. This prevents the child from blowing their inheritance frivolously when the child is too young to responsibly manage it.
During the entire life of the trust, the trustee will typically have discretion to pay the child more than these amounts if the trustee determines that doing so is in the child’s best interest. This means that if an 18 year old asks for trust funds to buy a sports car, the trustee can deny the request. If the 18 year old asks for funds to pay for college, the trustee can distribute the funds.
Grantors can get as creative as they like in laying out how they would like trust assets invested, managed, and distributed after they pass.
What to Expect From a Consultation
The purpose of a free consultation is to determine whether our firm is a good fit for your legal needs. Although we often discuss expected results and costs, our attorneys do not give legal advice unless and until you choose to retain us. Although most consultations are complimentary, some may carry a charge depending on the type of matter and meeting location.