Information about Trusts

1. Can a revocable living trust substitute for a will?

A properly drafted revocable living trust can work well as a substitute for a will and sometimes may reduce the costs of handling your estate. However, even if you have a trust, you should also have a will to cover the possibility that some of your assets may not be covered by the trust at the time of your death. Whether a trust is proper for your estate is a decision to be made after receiving competent legal advice.

2. What Is a Trust?

It is important to realize that changes may occur in this area of law. This information is not intended to be legal advice regarding your particular problem, and it is not intended to replace the work of an attorney.

A trust is another tool used in estate planning that can be created as part of a will or as a separate document. A trust is a legal document that appoints someone (a “trustee”) to manage your property and gives detailed instructions on how the property will be managed and distributed. A trust is one way to take care of a minor child, an elderly person or someone who needs help handling money. A trust may be established during your lifetime, and you may act as your own trustee, or it may be established by your will after your death. Trusts are generally more complicated to create than a will, the estate planning lawyers at The Taylor Law Firm are experienced in drafting a variety of trusts to best meet out estate planning client's individual needs.

When you create a trust, you have someone else, called a trustee, take over and manage your money, real estate or other kinds of assets for the benefit of a third person, called a beneficiary. As the trustor, you can set up a revocable trust, which allows you to make changes later on, or an irrevocable trust that cannot be changed.

There are different kinds of trusts, which serve different purposes. Among the most common types are: trusts for the support of minor or disabled children after the deaths of their parents; trusts designed to avoid or minimize involvement with probate court; and trusts designed to minimize tax liability when you want to make a gift to a beneficiary.

A trust for the benefit of minor or disabled children often takes effect when both parents have died or become unable to continue caring for the child themselves. It is usually set up to provide for the support, care and education of your children until they have reached the age set by you (their parents) to actually receive the assets being held by the trustee. This kind of trust can allow the trustee to manage funds for your disabled child throughout your child's lifetime.

When parents die without creating a trust for their children, a probate court will appoint a conservator to handle the children's financial needs. Conservators are restricted by law and must be bonded. They must file an annual report with the probate court, explaining how they have used the money on behalf of the children.

Another common type of trust is known as a “revocable living trust.” This is an alternative to a will. As trustor, you can cancel or change a revocable living trust throughout your life — just as you could change a will. You do not have to name a trustee to handle a revocable living trust. You can manage the funds or other assets yourself. Your trust can name someone else to act as trustee in case you later lose the ability to manage the trust. Like a will, a revocable living trust gives instructions as to how the your assets are to be distributed at your death.

In the right set of circumstances revocable living trusts may be more desirable than wills, but they are not the right choice for all people in all situations. A revocable living trust can sometimes avoid the need for your estate to go through the court's probate process after your death. One common misconception is that a revocable living trust saves death taxes. This is not true. The assets of a revocable living trust are subject to federal and state death taxes in exactly the same way as the assets passing under the terms of a will.

A trust is irrevocable if it cannot be changed or terminated, even during the life of the trustor. With irrevocable trusts, the trustor cannot be the trustee. Some types of irrevocable trusts may reduce death taxes, and, in some cases, can save income taxes.

Trusts are complex legal documents and not appropriate in all situations. Before establishing a trust you should seek legal advice. If you have questions, or need more information about trusts, contact an attorney who is knowledgeable on trust and estate planning matters.

Revocable Living Trusts

The following is general legal information, provided as a public service by Oregon's lawyers. The information is not intended to be legal advice regarding your particular problem. Note that changes may occur in this area of the law.

Revocable living trusts are often promoted as an effective alternative to probate for transferring property when you die. Even though Oregon's probate system is among the simplest and least expensive in the nation, many citizens are attracted by the possibility of even quicker and easier asset transfers. But revocable living trusts have some drawbacks. To help you decide if a revocable living trust is right for you, here are answers to some of the most frequently asked questions about these trusts.

3. What is a revocable living trust?

A revocable living trust is a legal device that can be used to manage your property during your lifetime and to distribute your property after your death.

A revocable living trust is established by a written agreement or declaration, which appoints a "trustee" to administer the property transferred to the trust, and which gives detailed instructions on how the property is to be managed and eventually distributed. If you want your trust to substitute for a probate proceeding (court administration of property after death), you must give the trustee detailed instructions about how to handle these situations, and you should legally transfer substantially all of your property to the trustee. A revocable living trust agreement or declaration is usually longer and more complicated than a will, and transfer of assets to the trustee can be time-consuming and expensive. Any competent adult can establish a revocable living trust.

4. Who can be the trustee?

In Oregon any competent adult can be the trustee, including the person setting up the trust. An Oregon bank or trust company can also act as trustee. A professional fiduciary that is not an Oregon bank or trust company can act as trustee, if a court appoints it and it posts a bond. You can appoint more than one trustee, delegating different duties to each trustee if you wish, and you can retain the power to remove the trustee and appoint a new one. Appointing a successor trustee is essential if you are the first trustee and the trust will carry on after you die or become incapacitated.

5. How is a revocable living trust established?

If a revocable living trust is appropriate for you, you will need a written agreement or declaration of trust, which sets out your plan for management and distribution of your assets. Then you must legally transfer all trust assets to the trustee. Deeds, stock transfers, new bank accounts and other legal documents may be necessary. Assets not formally transferred to the trustee will not be considered part of the trust and might still be subject to probate.

You must also have a will to ensure that any property not properly placed in your trust before death can be transferred to it after death. You can also have life insurance and certain pension accounts paid directly to the trust.

Probate and revocable living trusts
Probate is a legal process for transferring your property when you die. It is supervised by a court.

Probate usually involves validation of your will, appointment of a personal representative, collection of your assets, notification of and payment to your creditors, and transfer of your property to the beneficiaries under your will. Probate creates a public record for the administration of your estate. This public record includes all of your assets that are subject to probate and their value at the time of your death.

A revocable living trust avoids the public process of probate, because you collect your assets and transfer them to the trustee before you die. The trustee then transfers your assets to your beneficiaries after your death. If you establish a trust but fail to transfer your assets to your trustee, you will not avoid probate.

If you die owning real estate outside Oregon, a court proceeding might be required in each state where real estate is located. A revocable living trust can avoid these extra court proceedings only if that property is transferred to your trust.

Sometimes it is not a good idea to avoid probate. For instance, in a probate proceeding, your personal representative has special powers to deal with your creditors and can force them to file claims with the court or lose their claims. The trustee of a revocable living trust now has similar, optional powers to deal with creditors; however, using these powers may require some additional expense and delay, as in probate.

Even if you want to avoid probate, there may be better ways to do it. Joint tenancy ownership of specific assets, with the right of survivorship, can be a cost-effective way to avoid probate on the death of the first joint owner. There are several ways to pass bank accounts at death without probate, including joint accounts with right of survivorship, trust bank accounts, and so-called "payable on death" accounts. Most pension plans and life insurance policy proceeds pass under beneficiary designations that avoid probate without use of a revocable living trust. Depending on the nature and amount of property, one or more of these non-probate devices could be a less expensive way for you to avoid probate. Be aware though, that some of these non-probate devices can result in consequences relating to taxes, eligibility for publicly provided long-term care, and loss of independent control over an asset.

With a revocable living trust, it is possible to not transfer all assets to the trustee immediately, but specifically to authorize the attorney-in-fact to finish funding the trust if you become incapacitated. This approach will not avoid probate, however, if the trust funding is not completed before you die, because the power of attorney dies with you.

6. Does a revocable living trust avoid taxes?

By itself, a revocable living trust does not avoid income, estate or gift taxes. Provisions for saving estate and gift taxes can be included in a revocable living trust or in a will. Whether your assets are held in a trust or not, a state estate tax return must be filed after you die if your property exceeds $1 million in value for the year 2006 and beyond, and a federal estate tax return must be filed after you die if your property exceeds $5 million in value. You should not set up a revocable living trust just to save taxes.

7. What does a revocable living trust cost?

The exact cost of a revocable living trust depends on how complicated your assets and your estate planning goals are, how many assets must be transferred to the trustee, and whether tax planning is needed. Before you direct an attorney at The Taylor Law Firm to set up a trust for you, we will provide an estimate of how much it will cost, how much writing a will would cost and how much probating your estate would cost.

If you do not plan to serve as your own trustee, you should consider any fees you might want to pay the trustee and whether those fees would replace fees that you are already paying to manage your assets.

A revocable living trust plan should include the trust document, the transfer of assets to the trust, a "pour over" will to add any other assets to the trust, and a durable power of attorney. As part of any trust creation the Taylor Law Firm also provides related legal documents, such as an advance directive regarding medical decisions, a certification of trust, which summarizes important trust terms and information and all other necessary trust transfer documents.

Advantages of a revocable living trust

Avoidance of probate. In particular, a revocable living trust can avoid expensive multiple probate proceedings when you own real estate in several different states, as well as the publication of the otherwise private financial details of your estate.
Avoidance of conservatorship. A revocable trust can avoid the additional cost of a conservatorship in the event of your incapacity.
Efficient distribution. A revocable trust can reduce delays in distributing your property after you die, although delays caused by filing an estate tax return cannot be avoided.
Confidentiality. Generally the terms of your living trust are confidential, with only your named beneficiaries and trustee having access to that information.
Continuity. A trust can provide continuity of management of your property after your death or incapacity.