Although your Last Will and Testament will likely serve as the foundation of your comprehensive estate plan, you will likely include a wide variety of additional estate planning tools and strategies in your plan as well. Among those will likely be at least one trust agreement. If you are married, you and your spouse may create a trust agreement together as a way to protect your marital assets and eventually pass them down to future generations. You may wonder, however, what happens to a living trust when one spouse dies? Ultimately, what happens to a living trust that you and your spouse created if he/she dies will depend, to a great extent, on the type of trust you created and the terms of the trust agreement.
Trusts are broadly divided into two categories – testamentary and living trusts. A testamentary trust only becomes effective upon the death of the trust maker. A living trust (formally referred to as an “inter vivos” trust), on the other hand, will become effective as soon as all the formalities of creation are complete and the trust is funded. Living trusts are further divided into revocable and irrevocable living trusts.
If the living trust you and your spouse created is an irrevocable living trust, the terms of the trust itself will dictate what happens upon the death of your spouse. The reason for this is simple. Once an irrevocable living trust takes effect the maker of the trust cannot modify, change, or revoke the trust. Therefore, the trust will continue to operate under the terms of the trust unless those terms call for the trust to terminate upon the death of a spouse.
On the other hand, if you created a revocable living trust and one spouse dies the surviving spouse, assuming he/she was the maker of the trust, has the authority to modify or even revoke the trust at that point. That does not mean that the terms of the trust are not important. The terms of the trust, for example, might dictate that a percentage of the trust assets are to be paid out to a beneficiary upon the death of one spouse. The terms of any trust govern how trust assets are handled and managed. Therefore, the terms of the trust in existence at the time of death of one spouse will continue to dictate how the trust operates unless the surviving spouse has the legal authority to modify those terms or revoke the trust.
If you have additional questions about living trusts contact the experienced Missouri estate planning attorneys at Amen, Gantner & Capriano, Your Estate Matters, LLC by calling (314) 966-8077 to schedule an appointment.