Dolores M. Coulter

Attorney at Law

8341 Office Park Dr. Ste C

Grand Blanc, MI 48439

Phone:  (810) 603-0801

 Email: coulterdm@sbcglobal.net

Living Trusts

Dolores M. Coulter © March 2008 

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Q:  What is a living trust?  If I have a living trust do I also need a will? 

A trust is a separate legal entity that is created to hold property for the benefit of the persons named as beneficiaries in the trust agreement.  The trust is managed by a trustee according to the terms of the trust agreement.  The person who creates the trust is called the grantor or settlor.  The trust agreement contains details on how the money or property in the trust is to be managed and how distributions from the trust are to be made. The trustee has a legal obligation to manage the trust according to the terms of the trust agreement and to make prudent investment decisions. 

A trust can be either revocable or irrevocable.  A revocable trust is one in which the grantor reserves the right to revoke, amend, or modify the trust.  An irrevocable trust is one in which the grantor does not reserve that right. 

A living trust is one that is created during your lifetime.  It is distinguished from a testamentary trust, which is a trust that is created by including provisions in your will to create a trust.  To create a testamentary trust you include provisions in your will that direct that some or all of the assets in your estate be distributed to a trustee.  The trustee will hold the property and manage it according to the trust provisions in your will. 

The typical living trust is written as a revocable trust.  This means that you, as the grantor, sign a trust agreement to create a revocable trust and name yourself as the initial trustee.  You retain complete control over the assets of the trust.  You can make withdrawals from the trust, make changes in the trust agreement, or revoke the trust completely. 

Living trusts can be used to accomplish various estate planning objectives, including:

Avoid probate.  A living trust can avoid the need for a Probate Court proceeding to manage the distribution of your property after your death.  If your property is in your trust, then after your death your trustee will arrange to pay any debts that you owe and then distribute your property according to the terms of the trust agreement.  You can include provisions in your trust agreement to continue the trust after your death (for example, to provide for your spouse if you die before your spouse or to set up separate trusts for children or grandchildren). 

Provide for management of your property after you become unable to do so.  If you transfer your property to your living trust and you later become unable to manage your financial affairs, the person you named as successor trustee will assume the responsibility of managing your property according to the terms of your trust agreement. 

Avoid conservatorship proceedings.  A living trust can avoid the need for Probate Court proceedings to appoint a conservator to manage your finances in the event you become unable to do so.  If you have transferred your assets to your trust then your successor trustee would have the legal authority to manage those assets.  There should not be a need for a court-appointed conservator.  However, if some of your assets have not been transferred to the trust, a conservator may be needed to manage the assets that have not been transferred to the trust. 

A living trust is sometimes considered as a “will substitute” because the trust includes provisions on how to distribute your assets after your death.  If all of your assets have been transferred to your trust, then after your death your trustee, after paying any creditor claims, administrative expenses, and any tax liabilities will distribute the remaining assets to the persons named in your trust agreement.  Thus the trust serves the same function as a will.  However even with a living trust in place you should also have a will since there is always a possibility that not all of your assets will be in your trust at the time of your death.  Sometimes people simply forget to transfer some of their assets to the trust, or they may receive an asset (such as an inheritance) shortly before their death. In that case, if you did not have a will the assets that are not in the trust would be distributed according to the laws of intestacy, which may not be what you want.  You can avoid this situation by executing a “pour over will”.  A “pour over” will simply states that any assets solely in your name (not in the trust) at the time of your death are to be distributed to the trustee of your trust.  Your trustee will then distribute the assets according to your trust agreement.