What is a Living Trust?
A Living Trust is a vital component of an estate plan, and part of estate planning documents prepared for you while you are alive. In order for a Trust to work properly, you must transfer most of your assets to your living trust. Title to some assets cannot be transferred to the trust, such as IRA accounts. While you are alive and well, you are the Trustee of the Trust. Since you are the trustee, you manage the day-to-day operations of the Trust while you are alive and well. Normally, while you are alive and have capacity, the Trust is revocable. This means that you have full control over the assets and that can spend all the money in the Trust, revoke or cancel the Trust, amend or change the terms of the Trust, and change any of the beneficiaries of the Trust. You select one or more successor trustees in your Trust document. The successor trustee is the person or persons who will manage the Trust after you are no longer able to do so.
Why prepare a Trust?
In the event of your incapacity or death, the successor Trustee steps in and manages the Trust for you. If properly funded, the selection of the successor trustee is a very helpful estate planning tool in avoiding a conservator-ship proceeding. The successor Trustee can give you income and principal for your benefit while you are alive. Normally, the primary successor trustee is your spouse, if you are married. For most unmarried persons, the Successor Trustee can be one of a child, another person, or a bank. A trust will protect real and personal property; cheap homes or luxury homes; even liquid or non-liquid assets.
The Parties Involved
The Living Trust document itself names three different parties. The individual (or couple) that establishes the Trust is named the Grantor (also referred to as the Trustor).
The Trustee is the person named by the Trust as the controller of the Trust’s assets (and in many cases, the Trustees are the same people as the Grantors).
On the receiving end, the Beneficiaries are the heirs that will benefit from the Trust once the Grantor’s have passed away.
Who Needs A Living Trust?
Almost anyone with an estate of $100,000 or more can benefit from having a living trust. Estates of $100,000 or more are often subjected to probate in their state of residence, which can cost anywhere from 2%-4% of the estate’s value in court and legal fees.
The living trust also is useful for individuals subject to estate taxes. Through a living trust, a couple is able to maximize their Unified Credit to its fullest. It even accomplishes protection for individuals wanting to avoid conservatorship.
Advanced living trusts can be structured for complicated family situations. Re-married spouses, with children from a previous marriage, can use an advanced revocable trust to ensure kids receive their proper inheritance.
Avoiding Probate for the Entrepreneur
Living Trusts avoid probate, since they are completely private. Because a trust is recognized as a separate legal entity, distributions can be made by a Trustee to named beneficiaries without any involvement from the courts.
The courts maintain no control over the Trust’s assets, and do not tie up the assets in a lengthy (and costly) probate process. The Trustee simply distributes assets to named heirs, but only if those assets have actually been placed inside the Trust.