Financial Advice for Retirement, Social Security, IRAs and Estate Planning

The Revocable Living Trust “Transition Strategy”

Published on: Feb 23 2018
revocable living trust

Last week, we reviewed the pros and cons of the Power of Attorney and Revocable Living Trust (click here for Part 1).

For retirees who choose the revocable living trust, it’s important to understand all the options available.

For starters, after identifying your trusted person, establish a revocable living trust naming the person as current trustee.

You and your spouse can be co-trustees if you prefer.

This way, when the accounts are established in the trust’s name, the person already is known to the financial firms and is on the account records as an active trustee. That makes succession issues less likely.

There are three routes you can take when executing the transition strategy.

The first route is for you to be a co-trustee and continue taking all actions as though nothing’s changed.

You retain control of the paperwork, online passwords and the like. But the other trustee is on record as being empowered to act and knows where all the information and documents are located.

He or she can take over as soon as you need. Periodically, you should review everything with the co-trustee and explain any changes.

It also is a good idea to have the co-trustee occasionally make transactions to ensure they’ll be accepted.

A second route is to have the trusted person be the main or sole trustee from the outset.

You determine the extent of your involvement and can change it over time.

You can take an oversight role by receiving account statements and reviewing information online, for example.

Or you two can discuss all actions before they are taken, and the trustee then pays bills, manages investments and takes other actions as agreed.

Over time, as you are less able to handle matters and more comfortable with the person, you can reduce your role.

Remember, the trust is revocable so you can take back everything if you become uncomfortable.

The third route is more of a hedge and hybrid.

You create a revocable trust with the trusted person as sole trustee. But the trust has only one checking account funded with enough money to pay 6 – 12 months of expenses.

Then, when you are unable to manage affairs, the trustee pays bills without delay. Some planners refer to this as a disability trust.

Meanwhile, most of your assets are covered by a traditional Power of Attorney and revocable living trust, with the usual transition process.

There’s less stress and time pressure to have that transition completed, because you’ve ensured regular bills will be paid for an extended period.

A variation of the third route is for the trust not to have a funded account initially, or to have one with a minimum balance.

A different person has a Power of Attorney that authorizes the transfer of money from one of your main accounts to the trust account.

When you are unable to pay the bills, the Power of Attorney agent transfers money to the trust, and the trustee begins paying bills. This route has additional controls because two people are involved.

These transitional approaches are consistent with the way events develop for most people. Most people don’t go suddenly from being in full control of their affairs to being unable to manage them at all.

Most people experience a gradual decline. They need a little help at first, gradually need more, and eventually it’s time to turn things over to someone they trust.

The transition approach lets you gradually turn responsibility over to someone.

Over time. you are able to work with them, educate them, monitor them and overcome many of the practical problems with Power of Attorneys and trusts.

The most important step is to start early. If you wait until help is needed, it often is too late to set up an optimal plan.

To avoid wasting your assets and placing a great deal of stress on your loved ones, decide now on the plan you prefer and put it in place.

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