What Happens to a Trust Account When the Grantor Dies
The revocable living trust, commonly known as a living trust, is an important tool in the estate-planning process. Its flexibility lets the grantor of the trust continue managing its assets during their lifetime. But what happens if the grantor of the trust passes away?
Given the important role a living trust plays in manor planning, it's important to sympathise what happens when the grantor of a trust dies.
Death of the Grantor of a Trust
When the grantor of an individual living trust dies, the trust becomes irrevocable. This means no changes can be made to the trust. If the grantor was besides the trustee, it is at this point that the successor trustee steps in.
There is 1 exception to this rule. If the living trust is a joint living trust with 2 or more grantors—such as when spouses decide to ready a living trust together—the trust volition continue to role as a revocable trust if one grantor dies. Unless the terms of the trust country otherwise, the trust volition not become irrevocable until the death of both (or all) grantors.
When the grantor dies, what happens to the property held by the trust depends on the terms of the trust. Near commonly, the trust will set out how the property is to be distributed among the beneficiaries, and the successor trustee volition, every bit part of their duties, administer the property according to these terms.
Sometimes, especially in cases in which the grantor's children are the beneficiaries of the trust, the trust may stipulate that beneficiaries are to receive income from the trust until they reach a certain age, at which point the trust holding will be distributed to them. Parents may want to structure the trust's terms if they have small children or wish their children to attain a certain level of maturity (say, historic period 30) before having unfettered admission to the trust's assets.
The revocable living trust provides grantors the flexibility to manage the trust'southward assets during their lifetime while providing for the distribution of those assets upon their expiry. When the grantor dies, property held by the trust volition be dealt with according to the terms of the trust, rather than the terms of the grantor'southward volition.
Important Trust Terminology
Within the estate-planning process, the word "trust" comes upwardly oft. Of import terms you lot should know about trusts include:
Grantor: The grantor is the person who creates the trust and transfers property to it. A grantor is sometimes known equally the settlor or donor of the trust.
Trustee: The trustee is the person tasked with managing the trust'south assets. In many revocable living trusts, the grantor takes on the role of trustee during their lifetime.
Successor trustee: In cases in which the grantor and the initial trustee are one and the same, the trust certificate will designate a successor trustee. The successor trustee is the person who takes charge of managing the trust'southward assets if the trustee becomes unable to do then.
Beneficiaries: The beneficiaries are the individuals who benefit from the trust. In many living trusts, the grantor is the casher of the trust during their lifetime; upon their death, the benefits of the trust falls to the contingent beneficiaries.
Revocable trust: Living trust most normally refers to a revocable living trust. With this type of trust, the grantor retains the right to transfer assets in and out of the trust, alter the trust's terms, and even terminate the trust.
Irrevocable trust: Different a revocable living trust, no changes can be made if a trust is irrevocable.
Will vs. Living Trust
A living trust is non meant to replace a will. In nigh cases, you still want to have a volition to take care of any assets not held in the trust.
If yous've gear up a living trust and are working on drafting your volition also, you may be tempted to include provisions to bargain with some of the assets you've placed in your living trust. After all, your will is the certificate that stipulates how you want your property to be distributed on your expiry.
However, yous cannot use your will to land what happens to the assets being held by your living trust upon your death. In the optics of the police, a trust is a carve up legal entity. To transfer assets to your trust, then, you need to transfer the title (or ownership) of those assets to the trust.
This affects any provisions you lot might want to put into your will to bargain with these assets. The lesser line is that f your living trust is property the assets at the time of your death, those assets are non considered your property, and therefore you cannot stipulate how you want those assets dealt with in your will.
This portion of the site is for informational purposes just. The content is not legal advice. The statements and opinions are the expression of author, non LegalZoom, and have not been evaluated past LegalZoom for accuracy, completeness, or changes in the law.
Source: https://info.legalzoom.com/article/what-happens-when-the-grantor-of-a-trust-dies