Mechanicles Of A Good Living Trust – Part 2
June 23rd, 2009 Filed under: ab trust,Executor Fees,sample wills,Trusts attorney — Estate Planning Author
Parties to the Trust
TRUSTOR
The trustor is the individual/s who create the Living Trust. Trustor is also known as the Creator. Trustor/s will sign as Trustors. Then there is nothing much they need to do unless they wish to make changes to the trust.
SETTLOR
Settlor, who is almost the same individual/s as the Trustor/s. Settlor/s place the assets inside the trust. Settlor have abssolute power over those assets and can do what they like until death. The Settlors have the power to amend or revoke the Trust and name the heirs.
Settlors are generally husband and wife who are also the creators, the surviving spouse inherits the power to buy, sell, transfer, borrow against and distribute the assets. But the power to make changes to the “B” Trust (decedent’s trust) dies with the decedent. We need to understand what is A, B and C trusts here.
Husband and wife create either AB or ABC trust. For growing estates where they expect the estate to grow beyond $2m over time, they are better off creating an ABC Trust to start with. There is no difference in cost between AB and ABC Trusts to set up.
Until one spouse passes away it is all one ABC unit. When the first spouse passes away, the trust gets divided in to two equal parts, “A” Trust and B Trust. “B” Trust becomes irrevocable. “A” Trust is known as the marital trust owned and controlled by the surviving spouse. “B” trust is known as the decedent’s trust (passed away spouse). The B trust is divided into two trusts, “B” and “C”. “C” trust is also known as Q-TIP trust (Qualified Terminal Interest Property Trust). We will explain this later.
Surviving spouse can do what he/she wants to do with his/her “A” (Marital) part. Surviving spouse has to follow the directions of the deceased spouse originally agreed and written in the trust doucment concerning the disposition of his/her half of the trust (B part and C) and cannot make changes to the provisions of “B” and “C” trusts. Generally “B” and “C” trusts will allow some income and some principal to the surviving spouse for her/his maintenance. We will revisit these areas as we move along.
TRSUTEE/S
Trustee is the individual/s who handle the administration of the trust. Generally it is the same persons who are also the Trustors and Settlors. Trustees have extensive powers. Trustees will continue to do everything they were doing managing their assets before creating the trust and they have total freedom to continue managing their assets.
PRIMARY BENEFICIARIES
As long as the husband and wife are alive they are the primary beneficiaries and documents specify that the trust is primarily set up for their benefit as long as they live and that is why they call it a “LIVING TRUST”.
Children are generally named as primary beneficiaries after the both spouses are gone. Some times children may be named as primary beneficiaries for the decedent’s ” B” and “C” trusts for a number of reasons. More on this later.
I will continue this in my next article. It is easier to do this in small installments to help you understand, digest the info have a good handle on the subject.
With best wishes,
Ranga Chary, MBA, CFP
Certified Financial Planner
Member in good standing with National Ethics Bureau &
Certified Financial Planner Board of Standards INC.
http://www.wealthandtaxplanning.com
About the Author
Mr. Chary has been in comprehensive financial planning practice since 1977. Has been serving clients and their three generations, living in different parts of the US and abroad.
