Frequently asked Questions
What is a living trust?
A trust, like a corporation, is a legal entity that exists only on paper but is legally capable of owning property. A person, called a trustee, must be in charge of the property. You can be the trustee of your own living trust, keeping full control over all property legally owned by the trust.
There are many kinds of trusts. A "living trust" (also called an inter vivostrust) is simply a trust you create while you're alive, rather than one that is created at your death under the terms of your will.
All living trusts are designed to avoid probate. Some may help you reduce estate taxes (if you have assets and properties held outside of Canada), and others let you set up long-term property management.
What is a Testamentary trust?
A Testamentary trust is part of your will and becomes effective after your death. Assets in your name after you die that are not distributed directly to beneficiaries named on the account or asset (POD) can pass into the trust.
Assets that transfer into the trust first go through probate. A portion of assets that go through probate will be used to pay any taxes, creditors and other expenses that you owe. Remaining assets then can go into the trust to be distributed to or managed for named beneficiaries.
The primary advantage of this trust is the avoidance of administrative steps during your lifetime such as placing assets in the name of a trust — a requirement for a living trust.
Why would someone need a living trust?
If a member doesn't take steps to avoid probate, after their death their property will probably have to go through probate court before it reaches the people they want to inherit it. Probate is the court-supervised process of paying your debts and distributing your property to the people who inherit it.
Probate can drag on for several months before the beneficiaries get anything. By that time, there is less for them to inherit. In many cases, about 5% of the property has been eaten up by lawyers and court fees. The exact amount depends on state law and the rates of the lawyer hired by the executor.
Not everyone has to worry about probate and many people don't need a living trust, e.g. if you have very little property or your property falls under the state's probate exemption. Most states allow a certain amount of property to pass free of probate, or through a simplified probate procedure often referred to as a “Small Estate Process.
NOTE: It is important that we educate the member about the advantages of a Payable on Death (POD) designation as a ZERO cost solution to avoiding probate. As you know the POD can be executed with appropriate ID and a death certificate.
How does a living trust avoid probate?
Property transferred into a living trust before death doesn't go through probate. The successor trustee (the person appointed to handle the trust after the grantors death) simply transfers ownership to the beneficiaries named in the trust. In many cases, the whole process takes only a few weeks, and there are no lawyers or court fees to pay. When the property has all been transferred to the beneficiaries, the living trust ceases to exist.
Is it expensive to create a living trust?
Lawyers may charge upwards of $4,000 or more to draw up a moderately complex trust. Even Simple trusts can run to $1,000. Hiring a lawyer to draw up a living trust, might run as much now as heirs would have to pay for probate after the grantors death. The primary issue when evaluating the need for a living trust is the complexity of potential assets and the need to move quickly after the assets owner passing.
Is a living trust document ever made public, like a will?
No. A will becomes a matter of public record when it is submitted to probate court, as do all the other documents associated with probate including an inventory of the deceased person's assets and debts. The terms of a living trust, however, are not a matter of public record.
How should a members non trust accounts be set up to dovetail with the Trust?
A member may wish to use a Payable on Death designation on their personal membership (s) which will allow the funds to transfer directly to the living trust at their death. Checks issued for this purpose must be made payable to the Trust as stated on the POD designation.
A member may also wish to place a Durable Power of Attorney designation on their personal accounts which would allow someone to manage the account if they are incapacitated. This would function in much the same way as a successor trustee on the living trust.
Oregonians Credit Union will use a Certification of Trust form to document both the terms of the trust and the members understanding of how the trust will work.
Glossary of Terms
Beneficiaries- In a living trust, the persons and/or organizations who receive the trust property after the death of the trust grantor.
Conservatorship- A court controlled program for persons who have been declared incompetent because they are unable to manage their own affairs. Also called a probate guardianship in some states.
Estate- Property and debts left by an individual at death.
Executor- Person or institution named in a will to carry out its instructions (female is executrix); also called a personal representative.
Fiduciary- Person having the legal duty to act for another's benefit; implies great confidence and trust, and a high degree of good faith.
Grantor- The person who sets up or creates the trust; may also be referred to as the trustor, settlor or creator.
Grantor Trust- The name the IRS uses for a revocable living trust.
Intestate- Without a will.
Irrevocable Trust– Can not be changed or cancelled (revoked) once it is set up. Opposite of revocable trust. A living trust is typically not an irrevocable trust when created but may become an irrevocable trust once the Trustor / Grantor/ Settlor passes away.
Living Trust- A written legal document into which you place all of your property, with instructions for its management and distribution upon your incapacity or death; also known as a revocable inter vivos trust; a trust created during one's lifetime.
Living Will- A written document stating that you do or do not wish to be kept alive by artificial means when the illness or injury is terminal or when you are irreversibly vegetative or "brain dead."
Payable on Death (POD) aka Transfer on Death Designation (TOD)- Naming a beneficiary on an asset; when the owner dies the beneficiary immediately owns the property without probate.
Personal Representative- Another name for an executor or administrator of an estate. Established by a will or county court to facilitate the probate process. Not used in a Living Trust arrangement.
Revocable Trust- A trust which may be changed after it is created. Living Trusts are one form of a Revocable Trust. The person setting it up the trust (Trustor / Grantor/ Settlor) retains the power to change or cancel (revoke) the trust during his or her lifetime. Opposite of irrevocable trust
Successor Trustee- The successor trustee is the person who assumes control of the trust after the initial trustee, dies or becomes incapacitated. The successor trustee makes sure that the trust is managed for the benefit of the beneficiaries and is later distributed among the beneficiaries according to the terms of the trust. Usually, the successor trustee is the Trustor / Grantor/ Settlor knows well and trusts.
Trustee- Person or institution agreeing to accept and manage property according to the provisions of the trust agreement.
Trustor- The person who transfers his property to the benefit of a beneficiary under a trust document or declaration is called Trustor (may also be referred to as the grantor, settlor or creator). The Trustor disowns their right to the property specified in the trust documents or those which may later be transferred to the trust. A trustor can be and typically is the beneficiary under the trust they form.