Previously posted in 2015.
By Christine Steinmetz, J.D., Hotline Attorney
This blog is the fourth in a series regarding wills and trusts. Many clients call the hotline each week with questions regarding living trusts. In our previous post, we began discussing living trusts. In this post, we will discuss exactly what is a living trust. A trust is a written document that creates a relationship in which a person (or business) holds title to property for the benefit of another person. The terms of the relationship are described in the trust document, also known as the trust agreement.
The person who creates the trust is called the settlor, trustor, or grantor. The person holding title to the property for the benefit of another is called the trustee. The person for whose benefit the trust was created is called the beneficiary. The creator of the trust or grantor may decide to be both the trustee and a beneficiary of the trust during his or her lifetime.
There are different types of trusts. Many of us have heard of a living trust, but may not be sure what it means. A living trust, also known as an inter vivos trust (latin for “between the living”), is a trust created during the lifetime of the grantor. We discussed in our last blog a testamentary trust is a trust that is contained in a will. As stated in our previous blog, a testamentary trust goes through probate, whereas, a living trust avoids probate.
People often call the Legal Hotline for Michigan Seniors and confuse a living will with a living trust. However, these are two separate documents. A living will is a document a person signs stating their wishes about being kept alive by artificial means, has no similarity to a living trust, and is not an estate planning device.
When clients call regarding the living trust, they are often referring to the revocable grantor trust, which is a specific type of trust. The creator or grantor is the trustee of the trust and is the sole lifetime beneficiary. These trusts contain terms stating that the grantor can revoke or amend the the trust at any time until he or she dies or becomes legally incapacitated. A successor trustee is named to serve as trustee if the grantor becomes disabled or dies. Most clients choose the revocable grantor trust because it gives the grantor flexibility with his or her assets and allows them to make changes to the trust agreement.
The revocable grantor trust becomes irrevocable when the settlor dies or becomes incapacitated. Upon the death of the settlor, the trust may terminate or may continue on as a trust (or as more than one trust) for the benefit of the settlor’s spouse and/or beneficiaries. If a settlor becomes incapacitated, a fully funded revocable grantor trust could also eliminate the need for a conservatorship, which is administered by the probate court.
In our next post, we will continue our discussion regarding living trusts. If you have questions regarding wills or trusts, please contact the Legal Hotline for Michigan Seniors at 800.347.5297 and our hotline attorneys will be happy to answer your questions.