Overview of Living Trusts

Revocable living trusts are the estate planning architecture of choice for the American middle class. The trust concept is derived from old English common law. The modern use of living trusts by estate planners started to blossom in Virginia in the 1990s and is in full swing in the 21st Century.

Permit life and death planning
  • Coupled with durable power of attorney they are the best incapacity planning,
  • Excellent vehicle to manage assets during health and disability, and
  • Avoid probate if fully funded.
  • Comprehensiveness
  • The living trust is part of a coordinated, comprehensive plan that also may include the following documents 
Ancillary Instruments
  • Pour-over will (in which the probate court funds an unfunded trust), 
  • Financial power of attorney (authorizing another to stand in place of the trust-maker as to financial and other decisions not governed by the trust), 
  • Health care power of attorney (which delegates control in medical decision-making), and 
  • Living will (permit die naturally terminal medical condition). 
Parties to a Trust

The trust is created by the maker of the trust (grantor or settlor) and controlled by a trustee for the benefit of the named beneficiaries. The grantor typically is typically the trustee and beneficiary of the trust during this person’s lifetime. 
Changeable While Alive

Living trusts are revocable legal instruments, which can be easily updated to accommodate changes in life and in the law. To adjust to the seasons of life, the trust should be updated every three years, or when changes occur in regard to medical condition, financial status, or the designation of trustees and beneficiaries. Estate planning is a process, not a transaction. 

This author views the maker of the trust as being in control both during life and after death. While alive and well, the trust-maker (grantor, settlor) is in control of trust assets and in maximum control possible in case of long term care. The trust-maker handpicks the trustee – usually a spouse, family member, friend, or corporate trustee who takes charge at time of disability and death. A living trust coupled with a fresh and detailed durable financial power of attorney extends maximum control during long term care. Without further elder law planning, however, the trust will not be asset protected from nursing home expenses. 

Favored Disability Planning

The mechanics of transfer of control are handled by a disability panel comprised of the disability trustee plus a doctor. In addition to the client’s attending physician, a doctor, who specializes in treating the medical condition causing the disability, determines when trust control passes due to a disability. This hopefully avoids the expense of a conservator proceeding. 

In addition, the trust provides client-drafted written instructions, or trust guidelines. The guidelines set the standard, that during long term care situation, one’s wishes will be carried out in regard to being treated with respect and dignity, staying in one’s own home (and not a nursing home), and preventing social isolation for as long as practically possible. This makes a trust often appropriate for an older adult, who is single by virtue of pre-deceasing a spouse, of divorce, or by marital choice, as well as for married and unmarried couples.