Revocable Trusts are usually designed to operate over the balance of the creator's lifetime so that assets in the Trust can be managed for the creator's benefit by the Trustee. A revocable trust may be changed or revoked at the option of its creator but usually by no one else. As noted in Step 1, the Trustee may be the creator of the Trust or a 3rd person. If the creator becomes incompetent or wishes to turn over Trustee responsibilities to a 3rd party named as Successor Trustee, this can occur with a minimum of paper work. When the creator dies if he or she has remained the Trustee until death, the Successor Trustee then takes over. On the death of the creator of the Trust after debts, expenses of administration, and taxes are paid, the Trust may be divided into several subtrusts which may have different beneficiaries and objectives. For example, a trust may be exclusively for the benefit of the surviving spouse of the creator, another trust may be for the benefit of the creator's entire family, another trust may operate to provide college education expenses for grandchildren, and another trust designed to hold a family cottage. Trusts may be created during the lifetime which are completed gifts, that is, are irrevocable. These trusts also may fulfill many purposes, such as providing for grandchildren, holding life insurance policies, moving assets out of the estate of the creator, and providing income to a beneficiary for life with the remainder to a charity.
Estate planning for tax purposes almost always involves the use of trusts where the objective is to make use of the marital deduction and the unified credit or to isolate assets for the use of the Generation Skipping Transfer Tax exemption. If the trust drafter is designing trust provisions which do not have tax planning as a dominant feature there may be many ways in which an objective can be achieved. Where tax planning is of primary importance, the field of options sometimes may be narrowly prescribed and the need for clarity of language gives way to the need to meet technical tax requirements. These requirements may lead to language which is sometimes obscure.
© John A. Scott, P.C.
© John A. Scott, P.C.
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