A trust is a legal entity, just like a business entity (corporation, partnership, or LLC). The importance of a trust in estate planning is that a trust does not “die” or become “incompetent” or “incapacitated” The trust survives what happens to you. Therefore, you do not lose control of your decision-making or assets simply because you suffer a foreseeable consequence.
A trust document that, just like a Last Will & Testament, contains your instructions for what you want to happen to your assets when you die. Unlike a Last Will & Testament, however, a living trust contains your instructions for what you want to happen to you and your assets during your life, and after your life, and potentially even after the lives of you, your children, and grandchildren.
You simply change your legal ownership in and to the assets from “you” as an individual, to “you” as the trustee of your trust. Because your trust does not die, this form of ownership avoids probate at death, can control all of your assets for others at a time of risk of loss, and prevents the court from controlling your assets if you become incapacitated. The concept seems quite simple, but it is powerful, keeping you and your family out of the court system.
If it is hard to picture, consider a corporation. When the shareholder, officer, or director of a corporation dies, the assets of the corporation are not probated, because the corporation, a legal entity, survives. Someone else simply takes the deceased person’s place. The same is true of your trust! When you pass, your trust survives, with YOUR successor trustee taking your place. Of course, you choose the successor, and direct his or her role and responsibility.
Some liken the trust to a bucket, into which all of your worldly assets and instructions are placed. You carry the bucket during your life, and your successor takes it from you upon your death, disability, or incapacity. Because the bucket does not suffer a death, the court has no need to oversee distribution of its assets.
You maintain control of your assets and your trust at all times. As trustee of your trust, you can do anything you could do before — buy/sell assets, gift assets, borrow against assets. You also control the trust. You can change or even cancel your trust (that’s why it’s called a revocable living trust). You even file the same tax returns. Nothing changes but the names on the titles.
If you and your spouse are co-trustees, either can act and have instant control if one becomes incapacitated or dies. If something happens to both of you, or if you are the only trustee, the successor trustee you personally selected will step in. The successor trustee acts on your behalf, but follows your direction. In other words, he or she has a responsibility and power to carry out that responsibility, but cannot change what you have directed. You remain in control!
