Trusts are most easily thought of as being sets of rules. Thus, I may have a trust, which is a set of rules, that I can name whatever I want.
There are three players or roles for people involved in trusts, which roles can change over time and can sometimes be occupied by the same person at the same time.
The trust creator or writer is called the trust “settlor” or “grantor”. The owner of the assets in the trust is called the “beneficiary”. The person who ensures that the rules of the trust are followed is called the “trustee”.
If the trust settlor or grantor intends for the trust to take effect while the settlor or grantor is alive, the trust is called a “living” trust.
If the trust settlor or grantor intends for the trust to only have effect after the trust settlor or grantor is deceased, the trust rules will be set forth in the settlor’s or grantor’s last will and testament. These trusts are called “testamentary” trusts because testamentary trusts have effect only after the settlor or grantor is dead because these trusts (rules) are included in the settlor’s or grantor’s last will and testament.
If a trust is amendable, changeable or cancellable by the settlor or grantor at any time while the settlor or grantor is alive, the trust is called, “revocable”. If the trust is not amendable, changeable, or cancelled at any time by the settlor or grantor while the settlor or grantor is alive, the trust is called, “irrevocable”.
Therefore, a living trust can be revocable or irrevocable, depending upon whether the settlor or grantor can change the trust while the settlor or grantor is alive.
In sharp contrast, a testamentary trust can only be irrevocable, because the settlor or grantor is deceased when the trust becomes effective, which means that the only person who can amend or cancel the trust is dead and literally unable to change or cancel the trust.
Any testamentary trust is required by law to be supervised by the local probate court. That supervision includes regular reports by the trustee of all activity of the trust, and those reports must be precise as to assets down to the penny. The frequency of those reports is at least every other year, and certain counties like Allen County require those precise-to-the-penny reports to be filed every six months.
Living trusts that are irrevocable (not amendable or cancelable) are most often used in the context of either (a) asset protection for high-net-worth-individuals who have high risk jobs or (b) to protect assets against long-term care (nursing home, assisted living or independent living) in order to position people to be eligible for “nursing home” Medicaid, assisted living financial assistance (assisted living waiver) or in-home care (passport).
Irrevocable, living trusts are often written to still allow settlors or grantors to be able to change the ultimate post-death (of the settlors’/grantors’) distribution of assets in the trust (called “testamentary power of appointment”).
Lee R. Schroeder is an Ohio licensed attorney at Schroeder Law LLC in Putnam County. He limits his practice to business, real estate, estate planning and agriculture issues in northwest Ohio. He can be reached at [email protected] or at 419-659-2058. This article is not intended to serve as legal advice, and specific advice should be sought from the licensed attorney of your choice based upon the specific facts and circumstances that you face.