Table of Contents
- What is a trust?
- What makes a trust a Living Trust?
- What is the purpose of having a Living Trust?
- Why is it important to have some form of estate planning device (a Living Trust, a will, etc.)?
- How does a Living Trust differ from a will?
- What are the advantages of a Living Trust?
- Are there any advantages to going through the probate process?
- What are the disadvantages of a Living Trust?
- If I have a Living Trust, does that mean I don’t need a will at all?
- What is a Living Will?
- Can a Living Trust dispose of all of my property upon my death?
- Can I amend or revoke my Living Trust during my lifetime?
- Once I assign property to my Living Trust, do I lose control over that property?
- Who is responsible for overseeing the distribution of property from my Living Trust after my death?
- What are the Successor Trustee’s duties?
- How do I choose a Successor Trustee?
- What is a Children’s Trust?
- Can anyone have a Living Trust?
- Are there estate planning tools other than Living Trusts or wills?
A trust is a legal construct used for holding, transferring or otherwise disposing or property. It consists of assets given to it by a Grantor (the person who creates the trust) which are managed and distributed by a Trustee to benefit one or more Beneficiaries (those persons or organizations who will receive property under the trust).
A Living Trust is a trust where all three of the above designations (Grantor, Trustee and Beneficiary) are held by the same person. As long as the creator of the Living Trust is alive, he/she serves as the trust’s Grantor, Trustee and Beneficiary. Upon the death of the Living Trust’s creator, a Successor Trustee would succeed the creator, becoming responsible for the management of the trust and the distribution of the trust assets to its designated beneficiaries.
A Living Trust is sometimes known as a Revocable Trust, since the creator of the trust can revoke, or cancel, the trust at any time during his lifetime.
A Living Trust is an increasingly popular estate planning tool, used to distribute property upon the death of its creator. It has some significant advantages over wills, a far more prevalent estate planning device.
Without a valid and legal method by which to have your property distributed to your chosen beneficiaries (those persons or organizations to whom you decide to leave property) upon your death, your property will be distributed by a process called intestate distribution. Law books are filled with many unfortunate cases in which, because of the lack of a valid Living Trust or will, the true desires and wishes of a person as to who should inherit their property have been frustrated. If there is no valid Living Trust or will to use for direction, state intestate distribution laws require a probate judge to give a deceased person’s property to their spouse, children, or closest blood relatives. This result is required, even in situations when it is perfectly clear that the deceased person did not, under any circumstances, want those relatives to inherit the property.
The terms of state intestate distribution plans are complex in most states. In general, a person’s spouse is first in line to receive the property when there is no Living Trust or will at death. Most states provide that the spouse and children will either share the entire estate or the surviving spouse will take it all in the hopes that the spouse will share it with the children. Generally, the spouse will receive one-half and the children will receive one-half. In many states, if a person dies without a valid Living Trust or will and is survived by a spouse but not by any children, the spouse will inherit the entire estate and the surviving parents, brother, sisters, and any other blood relatives to the deceased will be entitled to nothing.
If there is no surviving spouse or children, the heirs, or blood relatives of the deceased will receive the estate. If there is someone or several persons within the next closest relationship level (for example, parents or siblings) who are alive on the death of the person, then these relatives will receive all of the person’s property or share it equally with all others alive who are in a similar relationship level. Once a level of blood relationship is found in which there is at least one living person, all persons who are more distantly related inherit nothing.
In addition, these legislative distribution plans are set up on the assumption that family members are the only parties whom a deceased person would wish to have inherit his or her property. Thus, without a Living Trust or will, it is impossible to leave any gifts to close friends, in-laws, blood relatives more distant then any alive, charities, or organizations of any type. If there is no Living Trust or will and if there are no blood relatives alive, the state confiscates all of a person’s property under a legal doctrine entitled escheat.
One of the most significant differences between a Living Trust and a will is that a Living Trust allows for the distribution of property upon death without going through the process of probate. Probate is an official series of court proceedings which begin with either proving a will is valid or determining that no will existed and continues with the distribution of the deceased person’s property.
A Living Trust distributes property without going through the process of probate. This is accomplished by transferring property into the trust while the trust’s creator is still alive. Upon the creator’s death, the transferred property automatically is distributed to the trust’s designated beneficiaries, avoiding the expense, delay and confusion of probate.
A major advantage of using a Living Trust as an estate planning tool as opposed to a will is the avoidance of probate. The probate process can be lengthy, confusing, and expensive. It generally takes from four to 18 months or more to complete the distribution of property using this process. Further, due to the complexity of probate, an attorney is generally required, adding to the cost of the process. Between court costs, appraisal fees, lawyer’s fees and accounting bills, the cost of probate can often cut significantly into the funds and property that will eventually be distributed to your beneficiaries. By using a Living Trust, this expense and delay can be avoided.
It is also worth noting that if you own real estate in a state other than that of your legal residence, that real estate would have to go through probate in a court of that other state, adding to the delay of distributing your assets. In this situation, the avoidance of probate using a Living Trust can be even more beneficial.
Another advantage of using a Living Trust is that if the trust’s creator becomes incapacitated, a Living Trust allows for the Successor Trustee to manage the trust’s property. Without a Living Trust, a “conservator” or “guardian” would need to be appointed by a court to handle such matters, requiring a lengthy and expensive process.
A Living Trust can also be advantageous in that the specifics of the trust’s estate plan remain confidential. Only the creator and the Successor Trustee need to know the trust’s specifics. The probate process is far more open and transparent, as elements of the process will become part of the public record.
Finally, it is often unnecessary for a lawyer to be involved in the distribution of assets through a Living Trust. Through the use of the Living Trust kits available at our website, the trust’s Successor Trustee should have no difficulty in distributing assets to the chosen beneficiaries. This can save not only time, but considerable money as well.
While probate can be lengthy and expensive, it does provide some advantages to the estate planning process. First, the probate court can protect against the improper distribution of your assets. In some cases, such protection can be extremely valuable. Second, the probate process puts a definite limit on the length of time that a creditor can file a claim against your estate. A Living Trust has no such cutoff date. For the vast majority of estates, this is not a problem, as they do not have large unpaid liabilities. However, if you feel that your estate may be subject to large claims, you may wish to use a will, rather than a Living Trust, to distribute your property upon death.
There are a few disadvantages to using a Living Trust to distribute your property upon your death. First, setting up a Living Trust entails some paperwork. You must carefully prepare a Trust document and the property and beneficiary schedules that will accompany it. You must also make certain that you have the selected property clearly transferred to the trust. If the property has a title or ownership document (such as a car or a piece of real estate), you must change the ownership documents to reflect that the ownership is being transferred to the trust. If the property has no ownership document, then simply listing the chosen property on the Trust Schedule of Assets will effectively transfer the property to the Trust.
In a very few situations and jurisdictions, there may be some limited transfer taxes, such as real estate transfer taxes or vehicle title transfer fees. In the vast majority of states, transfers of real estate to ownership by a Living Trust are exempt from any transfer taxes. Even if imposed, such transfer taxes are generally very minimal. Please check specifically with your jurisdiction if this is an issue.
There may be a few banks or finance companies that will balk at refinancing a property that has the title held by a trust. Most companies should be satisfied if you provide them with your trust document and all of the transfer documents (such as the new deed or title).
Finally, unlike a probate proceeding, there is no cutoff date for the filing of creditor’s claims against the estate of a person who dies with a Living Trust. (See above, “Are there any advantages to going through the probate process?” for more details.)
Even if you have a valid and thorough Living Trust in place, a will is still highly recommended. There may be assets that you have neglected, forgotten about, or that will not be uncovered until your death. If you have used a trust, joint property agreements, and other estate planning tools, these unknown or forgotten assets may wind up passing to your heirs as intestate property and causing probate proceedings to be instituted. Through the use of a simple will, you can avoid this possibility.
A Living Will is a document that can be used to state your desire that extraordinary life-support means not be used to artificially prolong your life in the event that you are stricken with a terminal disease or injury. Its use has been recognized in the vast majority of states in recent years.
Another document similar to a Living Will is a Durable Power of Attorney for Health Care. This document allows a person to appoint another person to handle all their health care affairs in the event that he or she becomes incapacitated or incompetent. Generally, this document will only take effect upon a person becoming unable to manage his or her own affairs. This type of document may be used to delegate the legal authority to make health care decisions to another person. It may be carefully tailored to fit your needs and concerns and may be used in conjunction with a living will.
A Living Trust can only dispose of property that was properly transferred into it during the lifetime of the trust’s creator. If there is property that was forgotten or otherwise not included in your Living Trust, it will not be disposed of the by the trust upon your death. It is for this reason that it is advisable to have a supplemental will in addition to your Living Trust to account for any such property.
One of the benefits of using a Living Trust is the ease with which the creator can amend or revoke it. There are no formal proceedings or actions required, other than the execution of a document amending or revoking the trust. Living Trust Amendment kits and Living Trust Revocation kits are available on our website. To purchase these forms, visit our website at FindLegalForms.com, or click the links above.
The creator of a Living Trust maintains control over all of the property that is transferred into the trust during his lifetime.
The Successor Trustee will have immediate legal authority to administer the assets of the Living Trust upon the death of the trust’s creator. For this reason, it is a good idea to make sure that the Successor Trustee is aware of the location of the Living Trust document, as well as other personal legal documents of the deceased, and will have easy access to those documents.
The Successor Trustee will be responsible for handling the collection of the trust’s assets, the management of the estate, and the payment of any debts and taxes until such time as all creditors’ claims are satisfied and the business of the estate is completed. An inventory of all of the assets in the trust is typically the first official act of a Successor Trustee. The Successor Trustee is then generally empowered to distribute all of the remaining property to the persons or organizations named in the trust. There are no court proceedings necessary for the Successor Trustee to carry out his or her duties.
Your choice of who should be your Successor Trustee is a personal decision. A spouse, sibling, or other trusted party is usually chosen to act as Successor Trustee, although a bank officer, accountant, or attorney may also be chosen. The person chosen should be someone you trust and someone whom you feel can handle or at least efficiently delegate the complicated tasks of making an inventory of all of your property and distributing it to your chosen beneficiaries. The person chosen should be a resident of the state in which you currently reside. In addition, all states require that Successor Trustees be competent, of legal age (generally, over 18) and a citizen of the U.S. It is generally not wise to appoint two or more persons as co-Successor Trustees. It is preferable to appoint your first choice as primary Successor Trustee and the other person as alternate Successor Trustee.
You should discuss your choice with the person chosen to be certain that they will be willing to act as Successor Trustee. In addition, it is wise to provide your Successor Trustee, in advance, with a copy of the Living Trust, along with the property and beneficiary worksheets you use to prepare the trust, so that they will have a firm and complete understanding of the trust’s contents and design.
A Children’s Trust is a legal mechanism used to hold certain assets for minor children until they are of a certain age, determined in advance by the creator of the trust.
You may set up a Children’s Trust within your Living Trust and have your Successor Trustee administer your children’s property until a time when you feel that your children will be able to handle their own affairs. Instructions to provide for this alternative are simply stated in a Living Trust, but are more difficult to accomplish without one. If such instruction is not provided for in a Living Trust and a minor child is left money or property by way of the state intestate succession laws, the courts will generally decide who should administer the property. Such court-supervised guardianship of the property or money will automatically end at the child’s reaching the legal age of majority in the state (usually 18 years of age). At this age, without a Living Trust to direct otherwise, the child will receive full control over the property and/or money. This may not be the most prudent result, as many 18-year-olds are not capable of managing property or large sums of money. With a Living Trust, it is easy to arrange for the property or money to be held in trust and used to benefit the child until a later age, perhaps 21, 25, or even 30 years of age or older.
Anyone who is 18 years of age or older, and of “sound mind,” can have a Living Trust.
The requirement to have a “sound mind” refers to the ability to understand the following:
- That you are signing a Living Trust
- That you know who your beneficiaries are
- That you understand the nature and extent of your assets
Having a “sound mind” refers only to the moment when you actually execute (sign) the Living Trust. A person who is suffering from a mental illness, a person who uses drugs or alcohol, or even a person who is senile may legally sign a Living Trust. This is acceptable as long as the Living Trust is signed and understood during a period when the person is lucid and has sufficient mental ability to understand the extent of his or her property, who is to receive that property, and that it is a Living Trust that is being signed.
There are a number of different estate planning tools that can help you to dispose of your assets upon your death. The three most important are as follows:
- Joint Tenancy with Right of Survivorship
Upon one owner’s death, any property held as joint tenants with right of survivorship passes automatically to the surviving owner without probate or court intervention of any kind. Under the laws of most states, the description of ownership on the deed or other title document must specifically state that the property is being held by the people as “joint tenants with right of survivorship.” If not, the property is usually presumed to be held as “tenants-in-common,” which means that each owner owns a certain specific share of the property which they may leave by way of a Living Trust or other estate planning device, such as a will. Some states have another class of property known as “tenancy-by-the-entirety” which is, essentially, a joint tenancy specifically for spouses.
- Life Insurance
Another common method of passing funds to a person on death while avoiding probate is through the use of life insurance. By making the premium payments throughout your life, you are accumulating assets for distribution on your death. The life insurance benefits are paid directly to your chosen beneficiaries without probate court intervention. However, life insurance benefits are still considered part of your taxable estate.
- Payable-on-Death Bank Accounts
This type of property ownership consists of a bank account held in trust for a named beneficiary. It may also be referred to as a “Totten” trust or “Bank” trust account. It is a very simple method for providing that the assets in a bank account are paid immediately to a beneficiary on your death without the beneficiary having any control over the account during your life, as is the case with a joint bank account. This trust-type bank account allows for the property to be transferred without probate and is very simple to set up. Any type of bank account, whether checking, savings, money market, or even certificates of deposit, may be designated as a payable-on-death account by filling out simple forms at your financial institution.
To obtain more information on insurance, you are advised to consult an insurance professional.
The second major use for estate planning tools is to attempt to lessen or completely avoid the payment of any taxes on the transfer of property upon death. Upon death, the transfer of property may be subject to federal estate taxes, state estate taxes, and state inheritance taxes. However, much of the taxation of estates (most importantly, federal taxation) does not become a factor unless your estate is valued at over $1 million. Thus, for most people, the need to pursue complicated tax avoidance estate plans is unnecessary. For reference however, some details regarding taxation of estates are provided in our Property Questionnaire (included in all of our Living Trust Kits). The complexity of tax laws and the methods to avoid taxes through estate planning is beyond the scope of this discussion. If your estate is over $1 million, it may be wise to seek the assistance of a tax professional.
The following forms found in our Living Trust Forms section relate to the topic of this article
Living Trust Forms Combo Packages – Save money by getting our very popular Living trust forms together in a convenient packet
Revocable Living Trust Kits for Married Couples – Revocable Living Trust Kits for Married Couples for use in all states.
Revocable Living Trust Kits for Single Persons or Individual Spouse – Revocable Living Trust Kits for single person or individual spouse for use in all states.
Living Trust Amendment – Living Trust Amendments for use in all states.
Living Trust Revocation – Living Trust Revocation for use in all states.
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