1975, June, Pg. 1281. CPC Newsletter.

4 Colo.Law. 1281

Colorado Lawyer

1975.

1975, June, Pg. 1281.

CPC Newsletter

1281Vol. 4, No. 6, Pg. 1281CPC NewsletterRevocable Trusts Under the CPC Part I

Historical PerspectiveMuch has been written about the utility of the revocable living trust as an estate planning instrument. The revocable living trust has been a valued planning tool for decades. Often it is the very foundation of the estate plan. For the purposes of this article, it is important to differentiate between two basic varieties of the revocable living trust. First, there is the unfunded life insurance trust which usually has no assets assigned to it during the lifetime of the grantor. It will eventually serve as the beneficiary of insurance policies on the life of the grantor, pension and profit-sharing benefits payable as a result of the death of the grantor prior to retirement, and assets of the grantor's probate estate pursuant to the terms of a pour-over will. The unfunded life insurance trust is not designed to have any particular utility until after the death of the grantor, and the banks indicate that a large number of such instruments are revoked before they ever reach fruition.

On the other hand, there is the funded revocable living trust to which the grantor during his lifetime conveys some or all of his property interests. The grantor may himself be the trustee during his lifetime so that he continues to manage the property in a different capacity, or he may relinquish the management of the assets to another family member or to a bank. Although many reasons may exist for the creation of a funded revocable living trust, there are two predominant goals which continually serve as the rationale for the creation of such a trust. First, the funded trust may be created by a person who no longer desires to actively participate in the management and investment decisions relating to his estate. This may be as a matter of convenience, or it may be the result of a fear of impending disability resulting from illness or advanced age. Second, perhaps the most proclaimed benefit to be derived from the use of the funded revocable living trust is the avoidance of probate administration. Although attorneys have often recommended funded trusts for probate avoidance, the use of trusts for this purpose increased greatly after 1965, when a Connecticut mutual fund salesman by the name of Norman Dacey published his national best seller on the subject. This book is still popular even though the public has been cautioned by the various bar associations with regard to the blind use of the forms contained in the book.

Increased public awareness of the nature of the probate process and wide-spread public dissatisfaction with what was often an archaic system for the transfer of one's

1282estate at death led to an increased effort at a national level to provide a more modern and streamlined probate procedure. The eventual result was the promulgation in 1969 of the Uniform Probate Code by the National Conference of Commissioners on Uniform State Laws. Colorado enacted a slightly modified version of the Uniform Probate Code effective July 1, 1974.

There is still debate among lawyers about the utility of the revocable living trust since the adoption of the Colorado Probate Code. An excellent general statement of the issues is contained in the article, "The Colorado Probate Code: Part I," The Colorado Lawyer (October, 1973). It would serve no good purpose to repeat the very sound analysis made in that article, and the reader is encouraged to review that article in light of the comments that are to follow.

Now that we have nine months' experience with the Colorado Probate Code, it is the purpose of this article to encourage the continued use of the revocable living trust as an estate planning alternative. (Next month's column will present some of the arguments mitigating against the widespread continued use of such trusts.)

Unfunded Life Insurance TrustsIn many estates, life insurance may be the major asset. Clearly, it is imperative that the proceeds from such insurance be coordinated with the total estate plan. No matter how well conceived the basic tax or estate plan may be, if the insurance is not brought under the plan, everything will have been for naught. It is possible to designate a testamentary trustee or an inter vivos trustee as beneficiary. Either type of trust can be used to accomplish the same tax objectives, and the...