Extension Office News: Living Trusts as An Estate Planning Tool

Trusts gained more attention during the COVID-19 pandemic as a tool to manage financial affairs, according to Montana State University Extension educators. But a trust may not be the right choice for everyone. Individuals should learn the pros and cons of the distinct types of trusts available, said Marsha Goetting, MSU Extension family economics specialist.

In Montana, the person who provides property and creates a trust is a “settlor,” also referred to as a grantor, donor, or trustor. The trustee is the individual, institution or organization that holds legal title to the trust property and is responsible for managing and administering those assets. The beneficiary is the person or persons who receive the benefits, such as the income or the principal of a trust.

“A revocable living trust is just what that name implies, one created during an individual’s life,” and Kaleena Miller, Madison-Jefferson County Extension Agent.

The trust agreement document contains instructions to the trustee regarding investment and management of the trust assets, who is to receive income from the trust, and what happens to the trust if the person creating the trust becomes incompetent or dies.

“The trustee can do only what the trust agreement specifies. The trust agreement provides when the trust ends and when the assets are to be distributed to the beneficiaries,” emphasizes Goetting.

For example, a grandmother’s estate planning goal is to treat her five grandchildren equally. She set up accounts for each grandchild at a brokerage firm, keeping the accounts in her name but designating her grandchildren as the beneficiaries upon her death. But by 2020, the balances of the accounts were unequal.

A revocable living trust could be an option. This type of trust is a legal arrangement that shifts ownership of property or specific assets — such as securities, real estate, bank accounts and more — into legal ownership of the trust.

Grandma could have a provision in the trust to distribute the assets equally to her grandchildren after her death. The children could decide to keep the mutual funds or cash them in at her death.

Or, Grandma could have stated that at her death the assets would be divided into five trusts and direct the trustee to distribute only the income to the grandchildren with the balance passing to them when they were age 30. Grandma can determine the way the assets are to be used by the grandchildren is she wants.

People should consider whether there are other legal arrangements to achieve their goals, such as a financial power of attorney or a written will. Before you decide on a trust, know the cost of setting up and paying for the management of the trust, and the estimated cost of distributing trust assets after the settlor’s death. Setting up a living trust may cost more and take more time than preparing a will. Trustee management fees may be payable if you cease to be your own trustee.

More information about revocable living trusts is available in the MSU Extension MontGuide “Revocable Living Trusts,” at http://store.msuextension.org/publications/FamilyFinancialManagement/MT199612HR.pdf. For those who do not have computer access, copies are available from the Madison-Jefferson County Extension office at 287-3282.