Living Trusts Basic Benefits
More and more individuals are putting their assets into revocable living trusts which are completely flexible and broadly adaptable arrangements for management, protection and distribution of a family's assets.
A living trust is created during your lifetime and is funded with most or all of your assets by simply re-titling the assets to yourself as trustee.
A living trust is LIVING in that it takes effect immediately. You continue to enjoy all the present benefits of your assets. A living trust is revocable during your lifetime, which means that its terms are changeable and assets in the trust can be retransferred to your name if desired, without adverse tax consequences.
A living trust is a private agreement where the distribution of assets under the terms of the trust is not subject to the publicity given to wills in probate proceedings.
The complete flexibility of a revocable living trust means that one can be drafted to suit your individual needs and family situation.
When you create a living trust, you can act as your own trustee so there are no management fees or loss of control. You can change or modify the trust terms at any time, change beneficiaries, and add or delete assets held by the trust without tax consequences.
A revocable living trust does not complicate the management of your assets. While protecting your property within a living trust you can do whatever you can do now with your assets and property. You can buy, sell, borrow, make gifts, etc.
With a living trust you retain control over all your property and assets during your lifetime and you determine distribution of your estate after your death. Since a living trust is revocable, it has no income tax consequences during your lifetime; no separate tax return is even filed and all trust income is reported under your social security number.
With a Living Trust, you are also appointing someone else (a professional, a trusted friend or a family member) to manage the assets in your trust for your benefit in the event of your incapacity (e.g., Alzheimer's, a stroke, an accident, etc.); because the assets are in a trust, no court administered conservatorship should be required. Under a living trust, you have the successor trustee of your choice ready to step in and take over your affairs until you recover or for the remainder of your lifetime.
For married grantors, the estate tax liability, which would otherwise be due at the death of the survivor, can be greatly reduced or completely eliminated by proper planning. This planning can be accomplished in a living trust (although it can also be accomplished through wills, this would require a separate probate at the death of each spouse). How much can be saved depends on the size of the estate and the estate tax laws at the time of the surviving spouse's death. At the same time, the trust can also insure that the estate of the first spouse to die will ultimately go to his or her children or heirs; even though the surviving spouse is provided the lifetime economic benefit of all assets, and has complete management and control over the entire trust.
A living trust allows you to AVOID PROBATE.
Probate is a court procedure that is required if your assets are distributed without a will, under a simple will or under a will with a testamentary trust. In court probate proceedings, the court changes the legal ownership of your property when you die.
During probate the court must determine the validity of your will, supervise the payment of all your debts and taxes as well as the distribution of your probate estate to the people you name in your will. This process may take six months to a year, or longer, and is a matter of public record.
Assets that you leave to your heirs by a will go through probate, but property passed through a living trust does not. With a living trust you can avoid the delay in the distribution of your estate entirely; the assets of your estate can be distributed to your designated beneficiaries immediately upon your death.
With a trust, when minors are the beneficiaries, the trustee can manage and invest the trust funds free of the costs and restrictions that arise when a court must appoint and supervise a guardian of the property until the beneficiary comes of age (at age 18). Additionally, with a trust, you can continue the management of a beneficiary's assets to whatever age you desire; certainly beyond age 18.
The management of a beneficiary's assets can include disbursement of assets and/or funds in increments, according to the directions you put in the trust (e.g., 1/3 distribution at age 25, 1/3 distribution at age 30, and the balance at age 35). Of course, the trustee can use any or all of the trust principal for the benefit of the beneficiary during this period for health, support, care and education. Also, if there is any question of management skills or capacity of the beneficiary, or to insure that your estate does not go to a son-in-law or a daughter-in-law, the trust can continue for the child's lifetime and then pass to the child's issue at his or her death. This will also keep your assets in your family rather than having them be subject to attachment by creditors or by the state for medical treatment. You can protect the assets from any potential of dissipation of the entire estate while providing for the beneficiary's needs, as determined by you. With a living trust, these trusts are already in place at the time of your death and will begin immediately for the benefit and protection of your beneficiaries.
When property passes through probate, you may incur many costs which can be substantial depending on the size of your estate and the location of any real property. All of these fees and expenses can reduce the estate to be distributed to your beneficiaries. With a living trust, these fees and costs can be greatly reduced. Your assets are transferred immediately to your designated beneficiaries outside the court system and in accordance with the directions specified by you in the trust agreement. Costs of administration of a living trust can be minimal and are generally based on the actual time and/or services required.
When an estate goes through probate, probate assets are frozen until the Court approves the executor and the Will. Creditors are invited to come forward with their claims and heirs may challenge certain bequests under the will if they are disappointed because they received less than they had anticipated. With a living trust, however, assets are not frozen and can be distributed to your designated beneficiaries immediately without the highly technical requirements of probate disposition. A disgruntled heir would have to hire an attorney and file a civil suit against each beneficiary.