Revocable Living Trusts

Over the last ten to twenty years, revocable living trusts (aka “inter vivos” trusts) have realized tremendous gains in popularity and visibility as a beneficial alternative to using a Will as the primary dispositive document. No longer merely a tool for the very wealthy, living trusts have gained broad acceptance. And for good reason — in most situations it is a far more flexible and efficient tool for managing property during life (including periods of incapacity) and disposing of (and managing) property after death.

Illinois Living Trust Basics

A living trust is simply a written property agreement wherein the grantor transfers property to a trustee for the benefit of named beneficiaries. There are three vital parties to every trust:

In the case of a typical revocable living trust — the grantor, initial trustee and initial primary beneficiary is the same person — you. This is commonly referred to as a “self declaration of trust”. In some situations, the property may be transferred to someone else as trustee, which may be known as a “trust agreement”. In either case, the trust is a “living” trust because it is created and becomes effective immediately during your lifetime (as opposed to a testamentary trust created under a Will upon death).

Creating and Funding an Illinois Revocable Living Trust

The living trust is a written document, usually drafted by a qualified estate planning attorney, that sets forth how you, as grantor, want your property managed and distributed during your life and after your death. After it is drafted and signed, it must be funded to be effective. A trust only controls property that is specifically titled in the name of the trust. Real estate, bank accounts, stocks, bonds and many other types of assets can be re-titled to change the ownership into the name of the trustee of the trust. Funding is a very important, yet often overlooked, step in the estate planning process. A living trust that is not properly funded will likely not achieve all of your goals.

Trust Operation During Grantor’s Life

During your life, you may serve as trustee of your trust and you would deal with the assets in the trust, now as trustee, exactly as you did before. You do not lose any control over your assets — you remain able to buy, sell, transfer, invest, gift, etc. just as you did with property in your own name or in joint tenancy. Taxable income from trust property continues to be reported exactly as before, with no additional filing or reporting requirements during your life while you are trustee. Moreover, the living trust is completely revocable and amendable by you, meaning that you are free to change your beneficiaries and successor trustees, and other terms of the trust.

Trustee Succession

The successor trustee(s) is the person or entity (e.g. bank) that you designate to manage the trust after you are no longer trustee. This successor trusteeship will be triggered in three distinct and important situations:

Post-Death Illinois Trust Administration

After your death, your trust becomes irrevocable and the successor trustee takes over without court petition or supervision and privately carries out the terms that you set forth in your trust (learn more on our Trust Administration page). The successor trustee is a “fiduciary” (like an executor) and is responsible for managing the trust in accordance with its terms and the Illinois Trusts and Trustees Act. The trust may provide for quick administration, distribution and termination or may allow for the trust (and/or additional trusts created by the document after death) to continue on for a period of time for the benefit of your beneficiaries. This can be very useful for estate tax planning and to meet other important estate planning objectives to meet your beneficiaries’ individual needs.

Advantages of an Illinois Revocable Living Trust

Sometimes touted as an estate tax-saving device, living trusts, in themselves, produce no inherent estate tax savings. The same estate tax savings that can be achieved through a living trust can be obtained through a testamentary trust (a trust contained within a will that becomes effective only upon your death). However, the living trust has a number of features that a Will (with or without a testamentary trust) cannot duplicate, including: