A living trust and a last will and testament can form the foundation of a complete estate plan in Utah. A living trust is not a substitute for a will. Instead, these two important estate planning documents can work together to help avoid probate and to help ensure that your estate will be distributed according to your wishes and without unnecessary complications.
In Davis County, we can help you create a complete custom-tailored estate plan designed to help protect you and those you care about. We work individually with clients to ensure that the estate plans we create meet their needs and goals. Contact us today to see how we can help you.
What is a “living” trust?
A living trust is more than just a document or a piece of paper. A trust is a separate legal entity that can hold (own) property. A trust will designate trustees who are tasked with managing the trust property, for the benefit of those named as beneficiaries according to instructions contained within the trust documents.
A living trust is one that is created during your life and that becomes effective during your life. (Contrast this with a testamentary trust, which is created by action of your last will and testament only after your death.)
What are the basic elements of a living trust?
Standard elements of a living trust will include: a name; trust property; trustee(s); beneficiary(ies); and instructions. The trust property includes any property (real, tangible, intellectual, or other assets) that is owned under the trust. A trustee is a person (individual or corporate) who is responsible for managing or distributing the trust property. A beneficiary is the person or other entity for whom the trust property is managed or used. The instructions (sometimes referred to as provisions, conditions, powers, or duties) set forth what a trustee can or cannot do, how the trust property is to be managed, what purposes the trust property may be used for, etc.
A trust will also have a grantor (sometimes called a “trustor”) – the person or entity that created the trust. The grantor is also commonly (but not always) the entity that funds the trust (transfers property or assets into the trust). A grantor will sometimes, but not always, serve as trustee. A grantor may also be a beneficiary under the terms of certain trusts (a “grantor trust”).
What purposes can a living trust serve?
A living trust is an important tool for maximizing control over your assets, not only after your death, but also in circumstances where you might still be alive but become incapacitated. Avoiding probate and avoiding the need to have a guardian appointed by the court are two other common purposes of a living trust.
Avoiding Probate
In most cases a well-drafted and properly funded living trust can help avoid the need for probate. The probate process in Utah allows for formal court determinations on issues including the validity of a will, the identity of the decedent’s heirs, appointment of a personal representative, and resolution of debtors’ claims. The probate process can be costly and time-consuming. Often, the cost of probate can be greater in both time and money than what would have been required to establish a complete estate plan including a living trust.
There may be circumstances that can still require a probate action even when a living trust has been properly established, executed, and funded. But these circumstances are generally rare.
Managing and Distributing Assets
Some of the most important functions of a living trust do not take effect until after the death of the grantor. In addition to providing instructions and care during life, a living trust, like a last will and testament, can provide detailed instructions as to the management or distribution of your property and assets after your death. The living trust can provide terms and conditions for the use of trust property by beneficiaries who may still be minor children, may have disabilities, or may have difficulty managing their own affairs due to youth, inexperience, immaturity, drug use, or any other reason.
If you anticipate circumstances that would justify delaying distribution, staged or stepped distributions, or ongoing management of assets or property on behalf of another person, then a living trust or testamentary trust is required. A trust provides you with the flexibility to manage the distribution of assets in a way that is most appropriate for you.
Without a trust, Utah law requires the immediate (or as soon as practicable) distribution of your estate following your death. In some cases, immediate distribution is not a problem. But are many circumstances where using periodic distributions, managed distributions, or distributions only for approved purposes will provide for better use of the trust assets. The use of a living trust can help to make sure that your children’s inheritance will be used to their greatest benefit. A qualified attorney can guide you through the different options best suited to your specific circumstances.
Avoiding Guardianship
A living trust used in conjunction with a durable power of attorney can help to avoid the need to obtain a guardianship for the grantor during his/her lifetime. In the event that you become incapacitated or unable to manage your own affairs during your lifetime, you will need someone to act on your behalf.
A court-appointed guardian can serve that purpose, but this requires formal court proceedings with their accompanying costs and delays. Instead, living trust and durable power of attorney can be used to provide another person with the authority to manage property, make decisions, or otherwise act on your behalf. But these tools need to be created and established before the need for guardianship becomes apparent.
For example, if you were to become incapacitated for any reason — injuries, coma, Alzheimer’s disease, etc. — a living trust and durable power of attorney can provide instructions for the management of your finances, property, assets, and even personal care. If you have already become incapacitated, it is too late for you to sign a power of attorney or create a living trust.
The guardianship process involves drafting and filing a formal petition with the court, paying a court filing fee, presenting evidence and proof that there is an impairment (often requiring medical records or even in-court testimony), ensuring that the incapacitated person has an independent an attorney for the person who is incapacitated, and finally, court supervision of the guardian’s actions.
By establishing a living trust and durable power of attorney early on, you may avoid the formal court processes necessary for appointment of a guardian. Additionally, you get to choose who has this authority and how such authority should be exercised — rather than leaving these decisions up to a judge.
Without an effective living trust and power of attorney, legally establishing who has the authority to manage your assets and make decisions on your behalf if needed, the process of obtaining a guardianship through the court system can involve disputed claims, competing petitions, and unnecessary costs and delays. In contrast, a well-crafted living trust provides a quicker, cleaner process that – most importantly – gives you control over how those decisions are made.
Living Will vs. Living Trust
The terms “living will” and “living trust” are frequently confused. The word “living” in each refers to the fact that they are both created during your lifetime and also take effect during your lifetime. This can be contrasted with a “last will” or “last will and testament” which only becomes effective after your death. A “testamentary trust” is one created by action of your last will and testament, becoming effective only after your death.
Although the terms “living will” and “living trust” sound similar, the two documents address very different matters. A living trust, as noted above, provides for the management, use, preservation, and distribution of assets owned under the trust. A living will provides instructions relating to your wishes and intents in regard to end-of-life care and decisions.
In years past, it was common that a person would execute a living will as a standalone document. Under more recent amendments to relevant sections of the Utah Code, it is standard practice to use an advance health care directive to serve the purposes of both a living will and a medical power of attorney.
Living Trust vs. Testamentary trust
Sometimes the terms “living trust” and “testamentary trust” can also be confused. A living trust is a trust created during the grantor’s or trustor’s lifetime, whereas a testamentary trust is a trust that only comes into being upon that person’s death and is established by a person’s last will and testament.
A testamentary trust can only be effective in distributing or managing property after the grantor’s/testator’s death. It can designate what property goes to whom, whether there are conditions that affect its distribution (like if there are children too young to directly inherit), and how that property is distributed.
Under Utah law, a living trust can be used to hold and manage property during the grantor’s lifetime as well as to manage and distribute property after the grantor’s death. Living trusts are also sometimes referred to using the Latin term “inter vivos” trust. Living trusts play an important role in many of our Davis County clients’ estate plans.
Finding an Estate Planning and Trusts Lawyer in Utah
Our lawyers are pleased to help clients in Davis County and throughout Utah establish personalized estate plans including living trusts and other important tools. If you already have an estate plan, we can help you review your existing plan and update it to ensure that it continues to fit your needs, goals, and changing circumstances.
If it has been more than a couple of years since you created or updated your estate plan or if you or your children’s circumstances have changed, a review may be in order. Contact us today to see how a qualified estate planning attorney can help you.