Living trusts, sometimes called revocable living trusts, are legal contracts established by a person, referred to as the trustmaker. The purpose of the trust is to own and control the assets of the trustmaker in such a way that the trustmaker’s liability for income, inheritance and other taxes is lessened. The value held by the revocable living trust can be invested, or used to purchase material items, at the direction of the trustee. Usually, the trustmaker is both the beneficiary of the trust as well as the trustee controlling it.
The trustmaker’s own social security number may be used for tax identification purposes. Income taxes for the trust are filed using IRS form 1041.
All trusts contain a section denoting what actions are to be executed should the trustmaker’s state of mind degrade to the point of incapacitation. Should the trustmaker be found incompetent to serve as the trustee, a disability trustee is specified to become the trustee. This person would provide all the services of the trustee, managing the assets in the trust, paying the bills of the trustmaker, and any other tasks the trustee had been doing.
After the trustmaker dies, a successor trustee, also referred to as an administrative trustee, takes control of the trust for the purposes of settling the ultimate financial responsibilities of the trust, such as money owed, last bills, funeral arrangements and taxes. In addition, the administrator will handle the paying out of the assets in the trust per the trustmaker’s instructions in the trust.
As these assets of the trust are not owned by an individual, but are the property of the legal entity of the trust, no probate is required to distribute the funds. The successor trustee may pay out the trust assets in a timely manner, insulated from any involvement of the courts.
To learn more about Revocable Living Trusts or to find out if they’re right for you, contact us today.