Basics of an Oregon Estate Plan (Part 2)
Part 2. What is a Trust.
This is the second article in our basics of estate planning series. In this article, we will explain what a Revocable Trust is, what it can be used for and what it can’t do.
The first article in the series is Part 1. What is a Will.
What is a Living Trust?
A living trust is simply a contract with yourself. You establish a trust by written agreement and by “funding” the trust by transferring your property into it. The trust will appoint a “trustee” to administer the assets of the trust. The trust agreement will also provide instructions for how the trust is to be administered. A living trust can be a used to avoid Probate or Conservatorship.
How does a Living Trust Work?
By retitling all of your property from yourself to the living trust while you are living and providing instructions for the “successor trustee” to distribute your property after your pass, very little of your property will pass through probate.
A diagram explaining the mechanics of a living trust.
A “Pour Over Will” is often used alongside a living trust to move property into the trust that was missed or was acquired after the trust was formed. A downside of this method is that “Pour Over Will” may have to be settled through a probate proceeding before the assets of the living trust can be distributed. Another option is to transfer the property not included in the living trust directly to the heirs by a small estate proceeding.
How does a Living Trust avoid Conservatorship?
Conservatorship is when the court determines that you are unable to manage your financial affairs and appoints a conservator to do so. By transferring your property to a revocable living trust and providing detailed instructions for the successor trustee in the event you become incapacitated, you can avoid the court oversight and costs involved in a conservatorship.
Drawbacks of a Living Trust.
The main drawbacks of a Revocable Living Trust are:
1. Complexity. Trusts are often left unfunded and property acquired after the formation of the trust is not moved into the trust. Living Trusts require more maintenance and ongoing administration than a will.
2. Costs. Living Trusts are more expensive than creating a will. For young and healthy individuals, the costs of probate and conservatorship are likely many years down the road. For these individuals, they are often times better off investing the money they would have spent setting up a Living Trust. Older individuals will more quickly see the benefits of probate and conservatorship avoidance and may want to consider a living trust.
3. Unforeseen Consequences. Family’s change and the law changes. Companies may want to review the trust documents if you purchase or insure property. Stock in certain corporations may not be held in some trusts without serious tax implications. You may also have difficulty acquiring assets in other Countries.
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