What is a Living Trust? | Estate Planning in Michigan

One of the most basic estate planning questions is “what is a living trust?” The second most common basic estate planning questions is, “do I need a living trust?” The third question people should be asking is “do I want a revocable living trust or do I want a Castle Asset Protection Trust?”

What is a Living Trust?

A good way to think of a living trust in Michigan is like this: think of it like a suitcase. To understand how the living trust works in Michigan, it would be helpful to understand the three roles that need to be served as part of a living trust.

The first role is that of a trust maker, the legal term is grantor. This is the person that creates the trust and typically is the one in control of the trust, at least initially.

The second role is that of a trustee. This is the person that is in charge of the trust. Think of this is the person who is holding onto the suitcase that the trust maker created. This can be the same person as the grantor or it could be somebody different.

The third role is that of a beneficiary. This is the person that receives the benefit of the assets in the trust. This is the person that the suitcase is created for.

With most living trusts, the person who creates the trust serves as grantor, trustee, and initial beneficiary. Then, when the person becomes disabled or incapacitated, they remain the beneficiary, are always the grantor, and they pass the role of trustee to their successor trustee. Think of it is passing the suitcase on to the next person to hold onto.

When the grantor, the person who created the suitcase, passes away, then they pass the suitcase on, officially, to the next trustee. That trustee, typically, then wraps up the affairs of the deceased, pays off any final expenses, and then manages as well as distributes the assets for the benefit of the beneficiaries, per the terms of the trust.

One of the big advantages of a trust-based estate plan is that it avoids probate by going to this process. When assets go through probate it can easily take over five months. However, with a trust-based estate plan everything can be wrapped up within a matter of weeks.

Do I Need a Living Trust in Michigan?

The next question that people ask is whether they “need a living trust in Michigan or not?” The answer, like almost every legal question, is that “it depends.”

One of the advantages of a trust-based estate plan is that it avoids probate, which most people want to avoid because probate is time-consuming and costly.

Another advantage of a trust-based estate plan is that a living trust in Michigan can control the distribution and you can build and protection for your beneficiaries. For example, you could build in lifetime asset protection for your children to protect them from divorces, lawsuits, and bankruptcies if your trust is set up correctly.

Unfortunately, many trusts aren’t set up properly to provide a lifetime of asset protection for the beneficiaries plus many trusts aren’t funded properly. That is why it is important to work with a certified elder law attorney, the gold standard for estate planning and elder law, when setting up a living trust.

Do I Want a Castle Trust (Michigan Asset Protection Trust) or a Revocable Living Trust?

The third question is a question that is only asked if you have a deep level of knowledge in the area of estate planning, because frankly, most estate planning attorney and financial advisors aren’t even aware of the asset protection opportunities Michigan and federal law allows when it comes to setting up trusts.

There are many types of irrevocable trusts, but don’t let the word irrevocable scare you, because it does not mean what you think it means. A Castle Trust is a form of irrevocable trust that allows you to change beneficiaries, change trustees, and emptied the trust at any time without penalty.

The Castle Trust allows flexibility while also offering asset protection against lawsuits and nursing home costs. This differs from a revocable living trust and that the revocable living trust only avoids probate. The Castle Trust avoids probate, can control the distribution and protect beneficiaries, and provide the asset protection against nursing home costs, as well as lawsuits. Learn more about the Castle Trust here.

The Important Final Step

The important final step of any trust-based estate plan is ensuring the trust is funded properly. This is where most trusts prepared by many Michigan estate planning lawyers fail, because they do not fund the trust properly. Instead, they give their clients a funding letter that gives instructions to the clients and how to move assets into the trust. At The Elder Care Firm, we actually fund the trust for our clients.

Funding a trust is similar to that suitcase example mentioned above. The trust is like a suitcase, if there are no assets in the suitcase and he passed that suitcase onto the successor trustee to administer for the beneficiaries, and all you’re doing is passing an empty suitcase.

Therefore, it is vitally important that a trust is funded correctly initially, and through the life of the trust. Funding a trust entails moving assets, changing ownership as well as beneficiaries, of all the assets in your name. These assets include your home, checking account, savings account, investments, IRAs, 401(k)s, life insurance, etc.

It is vital, we cannot stress this enough, that a trust whether it is a Castle Trust or living trust be funded properly.

Take The Next Step in Learning About Living Trusts and Castle Trusts

Attend a Free LifeCare Planning Workshop Button

If you’d like to learn more about living trusts and Castle Trusts, then you should attend one of our upcoming life care planning workshops where a certified elder law attorney will review the pros and cons of each and help you identify what type of trust, if any, makes sense in your situation. These free estate planning workshops are fast-paced, fun, and informative and they are occurring on an almost weekly basis.

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