Q&A: How a living trust helps your heirs after you die

Dear Liz: My husband and I made a living trust in 2004. He died in 2018, so his half became irrevocable. But while we were settling his estate, no one mentioned (though I can see clearly in the 2004 flow sheet) that all the assets from his half went into a survivor’s trust, controlled by me. I had the option to disclaim those assets within a year, which I did not do, so now everything is mine. Is this standard? If so, how can it be considered irrevocable?

Answer: The structure you’re describing is pretty standard for living trusts, which avoid probate, the court process that otherwise follows death. Living trusts are considered revocable when they are created, meaning the creators can make changes during their lifetimes. Eventually, the trust usually becomes irrevocable, which means changes no longer can be made.

Your living trust was entirely revocable while both of you were alive. That means you could make changes or cancel the trust entirely. When your husband died, part of the living trust became irrevocable — the part that created the survivor’s trust. You had the option to disclaim those assets, which means refusing to accept them, but you couldn’t dictate where the assets would go at that point or otherwise change the terms of the trust.

If your living trust had created a bypass trust instead, then that would have been irrevocable as well but the structure would have been quite different. The assets in the bypass trust would not become yours. Instead, you would get the income from the assets but they would ultimately be passed to heirs designated by your husband.

As mentioned earlier, bypass trusts can be helpful in blended family situations. They also are used to avoid or reduce estate taxes, which are no longer an issue for the vast majority of people. (A public service announcement: If your estate plan was created prior to 2010, you need to have it reviewed pronto. It’s entirely possible your plan includes a bypass trust that’s no longer necessary and that could needlessly complicate your estate.)

Comments

  1. JACK REILLY says

    I’m tired of reading that living trusts avoid probate. Consider my experience: my mother died at 103 years old and named me as the successor trustee with the assets of the trust to be distributed 75% to me and 25% to my cousin. When I presented my cousin with an accounting of the trust assets, he demanded that I provide an accounting of all income and expenses since the trust was created (a period of over 35 years). I informed him I could only provide an accounting for the short period that I was successor trustee. My cousin immediately filed a lawsuit against my deceased mother alleging mismanagement of the trust. Although the trust had a no-contest clause in it, my attorney advised that no-contest clauses are not enforceable in Calif. for accounting issues and that the opposing attorney could force me into opening probate. After several years and tens of thousands of dollars, an out of court settlement was reached. In my situation, a living trust did not prevent probate court involvement and the no-contest clause was worthless.

  2. Linda Bolewicz says

    Liz, re the living trust question of mine that you answered this morning – thank you. The trust eventually leaves everything to my sister and my husband’s brother. I wanted to update it – change the successor trustees, change my half to “disinherit” my sister, leaving her share directly to her sons, etc. My problem is that the attorney (the one who originally prepared the trust has died) has told me that all the assets are mine and that I need to make a new trust that is totally mine. (I gather that the original trust would exist in limbo with no assets.) Is he wrong; does this mean that half our assets are still in my husband’s share and they cannot be updated? That I can only update my half? I’ve been dealing with this for a year and am so afraid of doing something that invalidates the trust and everything we planned, leaving behind a big mess, but I don’t know if I can face getting another lawyer.

    • Liz Weston says

      Hi, Linda. I’m not an attorney so can’t answer legal questions. If you’re not sure about your guy, consider getting referrals from friends for a second opinion.

  3. Your 02/20/22 response regarding a living trust question got my attention. Pulled out our 2008 Living Trust as had some recall of AB trust. Upon review, it is called an AB Disclaimer Living Trust. Apparently, these were fairly common when estate tax changes were anticipated/in the works. And, in our case, with no previous marriages and only one child- now in 40s!- and with both of us working/saving/investing diligently-it would have been the only reason for even considering an AB anything type trust. As I understand it, an AB Disclaimer Trust grants the surviving spouse the right to NOT create the Trust A if it is not needed to save on overall estate taxes . If the surviving spouse does NOT disclaim any of the deceased spouse’s trust property, no Trust A is set-up. So would seem we are okay as it stands with a prior to 2010 estate plan unless you have concerns that we haven’t identified ??? Thank you. Enjoy and appreciate your column.

    • Liz Weston says

      Hi, Murphy! I’m not an attorney so I can’t give legal advice. But tax laws change all the time, as do our lives, so we have our estate plan reviewed every few years and after every major life change. Another clause that many older estate plans have has to do with stretch IRAs, which are no longer allowed for most nonspouse beneficiaries.