Living Trusts: What They Are and Why You Might Need One (Episode 318)

If you’ve ever wondered what a trust actually does or whether you need one, this episode is for you.

Episode Transcript

Speaker 1 (00:30):
Well, good afternoon, Michiganers. Today is Tuesday, April twenty nine,
twenty twenty five, and of course this is Tuesday with Tom,
Michigan's only Internet show where we do answer your questions
about estate planning and a state settlement in Michigan, and

(00:50):
we don't send you a bill. As always, I'm your host,
Tom Doyle, estate planning attorney, lifelong Michigan resident, and ambassador
for all things good in this great state of Michigan.
And it is feeling today like spring is finally here.
But welcome to today's program. Well, in our last episode,

(01:16):
I talked about or it was titled trust funding made Simple,
so I explored something that's often overlooked but is absolutely
critical if you're going to have a successful trust as
part of your state plan, and that is trust funding.
So if you've set up a trust, congratulations, but your

(01:38):
job isn't done yet. Listen to my last episode where
I do explain what trust funding is and why it
matters and how to do it right. In today's episode,
Living trust, what they are are and why you might

(02:02):
need one. So today we're going to tackle one of
the most important tools in estate planning, and that is
the living trust. If you've ever wondered what a trust
actually does or whether you need one, or maybe you
have one and you're not really sure how it works,
this episode is for you, but please remember what I'm

(02:23):
about to discuss is, as always for educational purposes only.
It is not intended to be legal advice. You need
to work with your attorney to determine what is appropriate
for you and your estate plan, living trust, what they are,

(02:48):
and why you might need one. Well, so let's start
with what is a living trust? So the living trust
is a legal document that you create while you're still alive.
Think of it kind of like a game plan for
your estate, one that works while you're living and continues
to function after you have die. It lets you stay

(03:13):
in control of your assets now, but it also ensures
a smooth private transition after your death. So there are
two main types of trusts that we want to talk
about today. One is what's called a living trust. The
other is what's called a testamentary trust. A living trust

(03:34):
is one that you create during your lifetime, while a
testamentary trust is one that's inside your will and only
becomes effective after your death and if your state goes
through probate. So here's a way kind of think about
a living trust. This way. Imagine a trust is like

(03:57):
a box. You build a box and then you put
things in your box. You put your house, you put
your accounts, you put your investments, basically whatever you choose
into that box. Now you're still in charge. That means
you're still in charge of everything that's in the box.
You can sell your assets, you can give your assets away.

(04:20):
They are still your assets. But if you become in
capacitated or upon your death, then somebody else is going
to step in and manage the trust for you. So
if it's during your lifetime, they'll manage the trust for you.
If it's after your death, they'll manage the trust and
distribute it out to your beneficiaries. Now, there are two

(04:44):
types of living trust, revocable and irrevocable. Revocable is the
most common living trust that is used. It basically means
you can change it circumstances. You can change it. You
can actually cancel it or update it at any time

(05:05):
in the future. But there's also something called an irrevocable trust.
And I've had previous episodes of this program where I've
talked about irrevocable trust, what they are, and whether or
not you might need one. So if you're wondering a
little bit more about that, listen to previous episodes of
Tuesday with Tom. But generally, an irrevocable trust can't be

(05:26):
changed once it's set up, and you can't normally be
the beneficiary of the irrevocable trust, and normally you can't
be in charge of the irrevocable trust. Think of creating
an irrevocable trust as like you're building a box. Somebody
else is in control of it. You're no longer in
control of that irrevocable one. So it's only going to

(05:48):
be really used for special purposes. It might be something
like protecting assets from creditors. Sometimes they're going to be
used for estate tax planning, which can be very very
important now depending upon what the President in Congress does
with the expiring federal estate tax exemption. But essentially for

(06:09):
everyday estate planning, revocable trust are the go to option,
not the irrevocable trust. So let's talk about some of
the key players. When you have a trust, you're going
to have what's called the grant or or sometimes called
the settler. That's you. That's the person who creates the trust,

(06:31):
and if it's a joint trust, it could be you
and your spouse. You're going to have a trustee. This
is a person who manages the trust. Again, most often
you are going to be the trustee during your lifetime,
so you're going to be managing it. Then you're going
to have successor trustee that's going to be the backup

(06:52):
to you. So if you can't manage it one day,
or don't want to manage it, or upon your death,
then the success or trustee is going to be the
person who steps in. And then the other player in
this trust are the beneficiaries. These are the people who
benefit from the trust. Again, during your lifetime, you are

(07:16):
normally the beneficiary of the trust, and then you provide
in the trust. Who's going to be the beneficiary of
the trust after your death? Well, people always ask a question, though,
if I set up this rivcal what about taxes? Do
my taxes change? So let's just briefly mention good news.

(07:37):
If you have a revocable trust, your taxes don't change.
You're going to still report your income just like you
always have on your regular tax returns. Now in Michigan.
What are the legal requirements in Michigan for creating a trust. Well,

(07:58):
in Michigan, we have a statue called EPIC. It's the
Estates and Protected Individual Codes. EPIC is an abbreviation of that.
That is basically the statute that controls what is required
in order to have a legal trust in the stated mission,
So to create a valid trust one you have to

(08:21):
be at least eighteen years old, and you have to
have legal capacity, which simply means that you understand what
you're doing and your trust will do. So it's not
very complicated. There are not a lot of requirements now. Normally, though,
when you have a living trust prepared for you, we're
going to make sure that that trust is in fact

(08:42):
notarized when you sign it. And that is because if
for any reason the trust or a portion of the
trust ever had be recorded with the Registered Deeds Office,
we need to make sure that it has been properly notarized.
But you in Michigan can actually have if you think
about it, in oral trust. But obviously the difficulty with

(09:02):
that is how do you prove after your death? How
does some prove what the trust was supposed to say,
which is why Obviously it's going to be reduced to writing, now,
why should you have a living trust? So there's going
to be a few times that certainly in our office,
we're going to look at recommending that you have a
living trust. One if you become incapacitated. Let's say you're

(09:26):
in the hospital for an experienced expended period of time,
or maybe you have some health issues or down the road,
maybe even some dementia where somebody else needs to manage
the estate for you. A revocable living trust can manage
that estate and use the estate to take care of
you then after your death, though essentially that trust is

(09:48):
going to allow for a generally smoother, more private distribution
of your estate. That can be helpful. Let's say you
have a spouse with dementia and you die, so someone
else needs to manage that estate for your spouse. Or
maybe you have minor children or grandchildren. You don't want
them to receive their inheritance maybe till they graduate from college,

(10:10):
so a trust can be used to manage the estate
for them. Maybe you have a special needs child and
now you've got some special needs planning issues where you
don't want them to lose their Government benefits. We can
look at considering a revocable living trust for you as
a tool for providing benefits to that child or maybe

(10:32):
another example, you just might have some beneficiaries who just
aren't great with money, they don't know how to manage money,
and so you're essentially creating the trust to protect them
from themselves. Now, trust can also help avoid probate. I've
had previous episodes of this program. I've talked about probate,
about what it is, what people are concerned about probate.

(10:56):
They're normally concerned about how expensive it can be to
go through probate, that it's a public record of whatever
you owned. When things go through probate, it can be
time consuming, all of those kinds of things. But if
you have a living trust and it is properly funded,
then the trustee can manage and distribute them generally more

(11:17):
quickly because they don't have to go to the probate court.
So protecting your privacy and a great deal of efficiency
in settling your estate. Another example second marriages. Maybe you
have a second marriage and you and your spouse are saying, look,
upon your death, you want your estate to go to

(11:40):
your You want your spouse to be supported after your death,
but ultimately, on your spouse's death, you want to make
your estate go to your children, not your spouse's children.
A very common use of a revocable living trust. And finally,
one other consideration, and talked about this in previous episodes.

(12:01):
In Michigan, we have a medicaid a state recovery law
that's essentially where the state of Michigan says, look, if
we pay for you to be in that nursing home
after you die, we want our money back well, and
appropriate trust can be used to avoid that Medicaid estate
recovery law. So let's summarize, if you will, a living

(12:28):
trust gives you control now, protection later, and peace of
mind throughout. And it's not just for the ultra wealthy.
You notice in this entire program, I didn't talk about
how big your state is, and I always asked that question.
It seems when I do a summonar Tom, how big
does my estate have to be in order to have

(12:49):
a living trust. It's not a question of how large
is your state. That might factor into if we have
federal state tax issues, but it's really not a question
of how large your state is. It's what are your
goals in putting your estate plan together? And oftentimes that
living trust is going to make it much easier for

(13:10):
your loved ones who are going to be tasked with
settling the estate. So if you're curious about whether or
not a trust makes for you, or if you're ready
to start planning, please visit our website doylapc dot com.
There you're going to find information about how you can
schedule a consultation with us, and you have the opportunity

(13:32):
ability to download our free estate planning guidebook. Well, I think, well,
let's talk about a little bit more than that. If
you will, if you will, on the other side of
this brief musical interlude, if you will, I was told

(14:11):
that in a podcast kind of when you're changing segments
of your podcast, a brief musical interlude is a good idea.
Lets the listeners know that you're kind of moving on.
So our moving on today is a call to action,
Amanda and I would be honored to have the opportunity
to help you protect your loved ones by perhaps putting

(14:32):
together a state plan, a mending a current plan that
you have, or assisting you in settling and a state again.
At Doyle LOOFPC dot com. You're going to find complete
information about how to schedule an in person consultation that
can be in ground, rapids or lancing. Virtual consultations wherever

(14:53):
you happen to be in this great state of Michigan
can be via zoom or telephone, so we can likely
be of assistance to you wherever you happen to be located.
Also at Doyle LAWPC dot com, you're going to find
our Legal Store. So let's say you only need one document.
Maybe you only need a new power of attorney for

(15:16):
your healthcare. You don't need an entire state plan. Could
you already have other things in place? Check out the
Legal Store because through our Legal Store you have the
ability to download or I'm sorry not to download, to
order and then ultimately received via email individual legal documents
such as healthcare powers of attorney, durable powers of attorney,

(15:39):
certificates of trust, et cetera. So all of that information
again is available at Doyle LAWPC dot com. Tuesday with

(16:05):
Tom has been brought to you by the estate planning
attorneys at Doyle Law PC to learn how we can
help you with your estate plan or with settling a
loved one's estate. Please call us today at five one
seven three two three seven three sixty six. That's five
one seven three two three seven three sixty six.