When you create a living trust as part of estate planning, you are a key participant in its success. However, you're not the only one who has a major impact on the trust. Who are the others? And how can you ensure the most success possible after you're gone? Here's what you need to know.
1. The Grantor
The grantor is the person who creates and funds the trust. Creating the trust should always be done with legal counsel, as mistakes create opportunities for legal contests after the grantor is gone. Also, assets must be legally transferred to the trust's ownership.
Be cautious when setting up and funding the trust, even though living trusts are usually revocable (meaning the terms can be altered at any time while the grantor is alive). Why? It becomes irrevocable — unchangeable — the moment you pass away. So you never know when it will become set in stone.
2. The Successor Trustee
The trustee administers the trust according to its rules. In general, the grantor is the primary trustee and manages the trust while alive. The good news is that as the trustee, the grantor maintains control of the assets and their use (within the trust's terms).
Once the primary trustee passes away, the successor trustee takes over. They must adhere to the terms of the trust. Failure to do so means interested parties, such as the beneficiary, may sue the trustee for breach of fiduciary duty or other claims.
Because the trustee will be on their own, the grantor needs to make clear what the terms of the trust are and what the trustee will have to do. Being a trustee is a big ask and can last for years, so make sure they are willing and able to do the job.
3. The Beneficiary
Who will the estate benefit throughout its existence? Who receives its assets upon its termination? These parties are the beneficiaries, and there may be one or many.
For the most part, beneficiaries are passive participants in the trust. They also must adhere to the terms, whether it's revocable or irrevocable. However, the trustee (and possibly the grantor) has a duty toward the beneficiary. The latter may sue if they believe the trustee is enriching themselves unjustly, mishandling assets, not providing payments as required, or violating the rules of the trust.
Be clear with beneficiaries about the terms of the trust. Get everyone on the same page when it comes to income from the trust and how distribution of its assets will work. Then, choose a trustee on whom the beneficiaries can rely and who works well with them.
Where to Start
Success in a trust is contingent upon having the right people involved, good communication, and ensuring its legality. Learn how to accomplish these goals by meeting with an estate planning attorney today.