Revocable Living Trust
In many jurisdictions, trusts cannot be revoked unless the trustor expressly retains the right to revoke. Revocable living trusts allow a trustor to manage his assets, to plan for his incapacity, and to avoid probate. The beneficiary of the trust gains interest in the assets during the trustor’s lifetime and gains possession upon the trustor’s death.
A trustor can devise assets in his will to the trustee of his revocable living trust or to a trust created by someone else. Such a devise is known as a pour-over gift and is valid only if the trust was in effect prior to the will or was created at the same time as the will. The pour-over gift is made to the trust as the trust exists at the trustor’s death, which includes any amendments made to the trust after the will is executed.
Life Insurance Proceeds, Retirement Plan Benefits
A trustor can name the trustee of a living trust or of a testamentary trust as beneficiary of his life insurance proceeds. However, if the trustee of a living trust is named beneficiary, the trust must exist at the time that the beneficiary is named. These principles also apply to retirement plan benefits.
Under a Totten trust, a trust-like arrangement is created by a person who deposits money in a bank account and names a beneficiary. Because the depositor owes no duties to the beneficiary, a real trust is not formed. However, upon the depositor’s death, the account will not go through probate but will be distributed by the bank directly to the beneficiary. Although the account belongs to the beneficiary, it can be reached by the depositor’s creditors. A Totten trust is revoked if the beneficiary dies before the depositor. Revocation can also be by will, but only if the will expressly refers to the account and to the bank.
A spendthrift clause in a trust prohibits transfers of a beneficiary’s interest in the trust. In some jurisdictions, all income interests are automatically given limited spendthrift protection meaning that they cannot be transferred by a beneficiary or reached by his creditors unless a provision is inserted in the trust document allowing such transfers. If there is no provision allowing the beneficiary to transfer his interest, it can be reached: by a creditor that furnished necessities such as food, clothing, shelter, or medicine; in suits to enforce child support or alimony; to collect a federal tax lien; to the extent of income beyond that reasonably needed by the beneficiary for support and education; and by creditors who have a judgment against the beneficiary and can levy upon 10 percent of the income due. There is no spendthrift protection where the trustor is also the beneficiary.