Anatomy of a Trust

A revocable living trust is used in estate planning to manage assets during a person’s lifetime and to transfer those assets upon death. A key benefit of a revocable living trust is that it can help avoid the probate process, as the assets are already in the trust and do not need to pass through the court system. If you’re new to estate planning or to trusts, here is a quick guide to break down the different parts of a trust.

Basic Components of a Revocable Living Trust:

• Grantor: This section contains the title of the document and identifies it as a revocable living trust. It also includes the grantor and the trustee. The grantor is the person who creates the trust and contributes assets to it. The trustee is the person or entity who manages the trust. The grantor often is the initial trustee but that role changes upon the grantor’s death.
• Trustee: The trustee is in charge of carrying out the instructions of the trust. They also have authority over all trust assets. The trust will name the current trustee (typically the grantor initially, as long as the grantor is alive) and successor trustees to manage the trust assets after the grantor dies.
• Management of Trust Assets: A key component to a trust, this section outlines the trustee’s duties. This includes a trustee’s responsibility in managing the trust’s assets and ensuring they are used according to the trust’s terms and grantor’s wishes. This section will also outline how the trust’s income and principal will be distributed during the grantor’s lifetime. A trust will also outline the specific powers of the trustee, such as the ability to sell or invest assets, manage real estate, and distribute funds. The trust may also include provisions to minimize estate taxes, though the specific strategies will depend on the value of the grantor’s estate and applicable state and federal laws.
• Beneficiaries: This section will outline the beneficiaries of the trust and will provide specific final distribution instructions. These are the person/people who will receive or benefit from the assets.
  • Primary Beneficiary: Typically the grantor, who continues to benefit from the assets while alive.
  • Secondary Beneficiaries: Those who will benefit from the trust after the grantor’s death, such as children, other family members, or charities.
• Revocation or Amendment: An important distinction, this section will include a revocability clause, which states that the grantor retains the right to revoke or amend the trust at any time during their lifetime. This is different than an irrevocable trust which is not as commonly used.
• Disability or Incapacity Planning: Because estate plans should be comprehensive and plan for all possibilities, the trust can include information for potential disability or incapacity. In such case, it will also detail how the grantor’s assets will be managed.
• Signatures and Notarization: The trust much be signed by the grantor and notarized to be legally effective and binding.

Relationship Between Will and Trust:

• Pour-Over Will: Often accompanies a revocable living trust. It is a type of will that ensures any assets not included in the trust at the time of the grantor’s death are “poured over” into the trust and distributed according to its terms.
• Revocable Living Trust vs. Will: While a will is a legal document that outlines how your property will be distributed after your death, a revocable living trust can manage and distribute your assets both during your lifetime and after your death, offering privacy and avoiding probate.

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