Having a good revocable living trust as a part of your estate plan is vital for many people in North Dakota and Minnesota. Yet even though a lot of people create living trusts and incorporate them as part of their comprehensive estate plan, even those who have already made one orange always aware of what they do or why they are important. Not only that, but when people talk to a lawyer about creating a living trust, they can easily get lost in the terminology the lawyer uses when explaining how these trusts operate. It’s a good idea to go back and take a look at some of the important terms you might hear when you discuss living trusts with your estate planning attorney.
A revocable living trust, or our RLT, is something you can create as long as you are a capable adult. When you sit down and create the trust instrument (the document that sets out the trust terms) your trust becomes effective as soon as you sign the document. After that, you will have to transfer some of your property from your name into the trust’s name.
Because this trust takes effect while you are still alive, it’s known as a living trust. A trust that you create through your will only takes effect after you die, which is why it’s called a testamentary trust.
When you create a revocable living trust you retain the right to change the trust terms as you see fit. You can revoke the trust at any time, name new beneficiaries, remove the trustee, or change any of the terms you establish when you created the trust document. Because you have the ability to revoke the trust at any time, it’s known as a revocable living trust.
In other situations you can create an irrevocable trust. As the name implies, irrevocable trusts have terms that you cannot change once you have created the trust.
Complex or Simple
It’s also important to differentiate between simple or complex trusts. Now, what makes a trust complex or simple is not how many terms you include, the rules you impose on beneficiaries, or anything of that nature. The complexity of the trust is entirely dependent upon how the Internal Revenue Service categorizes it.
For IRS purposes, a simple trust is essentially one that must pay all of its proceeds or income to the beneficiaries, while a complex trust does not have such an obligation. However, this is a simplification of the actual IRS requirements, so you should make sure to talk to your estate planning attorney about your living trust and how it will affect your taxes.
You can learn a lot more about trusts and estate planning at one of our next free estate planning seminars. Visit our seminars page for detailed information about where we will be, and then contact our office for advance registration.