DISCLAIMER: I am not an attorney, and this is not legal advice. Reach out to an attorney for legal advice. The purpose of this blog is to describe my personal experience serving as an intern and what I am learning through the process.
A Letter From The Intern #3: Living Trusts
The Law Offices of Samantha K. Wolfe Clientele,
Week three of my summer internship has officially begun! Having just returned from a family beach vacation, I am excited to get back to helping all of you by sharing what I’ve learned about Elder Law. I am also happy to be back in the offices to see my amazing coworkers, who may or may not be jealous of my recent beach trip! If nothing else, I will surely be a bit more tan from being out in the sun whenever I meet you all at the offices!
Something I have noticed frequently throughout sitting in meetings with clients is their desire to figure out their finances and officially establish where those finances will go. Money is an important aspect of everyday life, and people would like to feel that their money is secure and being handled in a way that they would like it to be handled. There are many means by which to do so out there, and all of this noise can be overwhelming to someone who is not fully aware of the options at their disposal. As such, I felt that this topic would be a good choice of discussion in this week’s “Letter From The Intern” blog post and “An Intern’s Crash Course On Elder Law” video.
One meeting in particular I sat in on with Attorney Wolfe and two of her clients inspired me to choose this topic. This client and her husband were meeting with Attorney Wolfe to sort out the financial affairs of a collection of money and property that belonged to a company that she owned. This collection of money and property was called a Living Trust, which she had the right to control as its owner. Although not everyone is an owner of a business, these Living Trusts are tools that anyone can potentially utilize to handle most kinds of financial affairs that they can think of. Understanding these can open the door to new means by which individuals can find confidence that their money and property is being used well and according to their wishes. Living Trusts
A Living Trust is a document which lists a set of rules chosen by the owner of the assets mentioned on how those assets are to be used. This document is created when the owner of the assets is still alive, thus giving it the title of a “Living” Trust. A Living Trust can be irrevocable or revocable. A Living Trust can contain both liquid and nonliquid assets, which is to say that both money and objects of value can be owned by the trust. I talked more in depth about liquid and nonliquid assets in the previous “Letter From The Intern” blog post and “An Intern’s Crash Course On Elder Law” video if you are interested in learning more about them. Each Living Trust outlines specific stipulations selected by the grantor, or person who adds to the Living Trust. These stipulations create a set of rules on how the assets within the Living Trust can be utilized. For example, if life insurance pays to an individual’s Living Trust at the owner’s life, the Living Trust provisions may stipulate that only a certain amount of it can be given to a particular individual. This individual who receives the assets is called the beneficiary, which is a term I have also discussed in the previous blog and video.
Irrevocable trusts can be considered Living Trusts if they are created during the grantor’s life. An irrevocable trust has what is called a lookback period. This is a period of five years after the assets are transferred to the irrevocable trust where those assets would be available for the grantor’s long-term care. If something happens during this five-year period, the assets transferred to the irrevocable trust are available for the grantor’s nursing home costs. An irrevocable trust also helps protect the assets listed within the irrevocable trusts from other creditors as well.
The critical difference between a Living Trust and a Last Will and Testament is that if Living Trusts are funded with assets during life, those assets are not subject to probate. If the Living Trust is a revocable Living Trust, the assets owned by the Revocable Living Trust can be removed from and added to the Revocable Living Trust at any time so long as the grantor is alive and the individual making edits has the right to do so. In contrast, a Last Will and Testament is subject to the probate process. It should be noted that Living Trusts can be made irrevocable as well if the grantor wishes it to be that way. At The Law Offices of Samantha K. Wolfe, one of the reasons that Attorney Wolfe suggests using a revocable Living Trust rather than a Last Will and Testament is to limit the hassle and expense when someone dies. This is primarily due to the Living Trust being far quicker at putting the assets into the hands of the beneficiaries due to the Last Will and Testament needing to go through the probate process. Privacy, protection from creditors, and the ability to be utilized during an unforeseen event such as divorce or an accident are also reasons why Living Trusts are preferred. My previous blog post and video goes in-depth on the Last Will and Testament document if you would like to learn more about that topic.
Trusts can be created as a Testamentary Trust or a Living Trust. A Testamentary Trust is a trust created under an individual’s Last Will and Testament. As such, the limitations of a Last Will and Testament are shared by the Testamentary Living Trust: the probate process, irrevocability, and application strictly at the passing of the grantor all being notable examples. In contrast, an Inter Vivos Living Trust is a version of a Living Trust that can be applied and altered while the grantor is alive. “Inter Vivos” is a Latin phrase which means “While Alive.” This document can be revocable, and as such sometimes makes Inter Vivos Living Trusts recommended over a Testamentary Trusts at The Law Offices of Samantha K. Wolfe for the reasons previously mentioned. If the grantor does not retain certain powers in the Living Trust, the trust is a labeled a nongrantor trust for income tax purposes. It should be noted that it is more difficult for a trust labeled a nongrantor trust to be edited. The trustee of a nongrantor trust must obtain an Employee Identification Number (E.I.N.) from the Internal Revenue Service (I.R.S.) for tax identification purposes, whereas grantor trust can use the grantor’s Social Security Number (S.S.N.) as the taxpayer identification number. Beyond the grantor, there are other individuals who can handle the assets in the Living Trust. A trustee is an individual outlined in the document that has the duty of managing the assets within the Living Trust, however they must follow the rules outlined in the Living Trust. For an irrevocable trust, a trust protector is an important role. A trust protector is an individual also outlined in the document whose duty is to protect the assets from creditors, or outside individuals seeking to claim assets due to the grantor’s debt. In certain trusts, a trust protector is the party who can remove assets from the trust. Typically, a trustee has the ability to remove assets, but for an irrevocable trust used for asset protection planning, the trust protector is the party who can remove assets.
Each of the previously mentioned Living Trust documents are recommended to clients of The Law Offices of Samantha K. Wolfe based on their specific set of circumstances. If you feel that any of the documents outlined in this letter may help you in organizing your financial affairs, you can reach out to our office for a free consultation at 717-655-2676 or at https://www.skwlawoffice.com/contact-us.html. Be on the lookout for next week’s letter from me. I hope you all have a fun and safe Independence Day weekend with your family and friends! As always, I hope to see your faces in the offices soon!
Noah Hazlett, The Intern