Living Trusts
A Living Trust is a legal document
that enables you to leave instructions for who
you want to handle your final affairs and how
you want your assets distributed after you die.
Living Trusts look a lot like a will but, unlike
a will, a Living Trust does not go through probate 
(providing
privacy concerning assets included in the living
trust), it prevents the court from controlling
your assets if your are declared incompetent,
and it gives you (not the court) control over
the assets in the trust that you leave to your
minor children and/or grandchildren.
A Living Trust can be revocable
or irrevocable (you cannot change it or take
out assets that have been placed in it). When
you establish or set up the trust, you are called
the Grantor (sometimes Settlor or Trustor). You will also name a Trustee to manage the assets you place in the trust.
Many people name themselves, continuing to handle
their affairs as they would have without the
trust. Married couples often establish themselves
as Co-Trustees. In case one of the Co-Trustees
becomes incapacitated or dies, the other instantly
has control, without court involvement, of the
assets in the trust.
A Successor Trustee needs to be
named in case you (or both of you in the case
of Co-Trustees) becomes incapacitated or dies.
This can be an individual (your adult children
or dependable family friends) or a Corporate
Trustee (a bank).
Each type, revocable or irrevocable,
has advantages and disadvantages.
Revocable Living Trust
Advantages
- You see your trust work.
- You avoid probate and the trust can be used
to avoid ancillary probate - that is probate
of property in another state.
- You avoid the attendant publicity of probate.
- You will probably save your estate a substantial
amount of fees and costs.
- You can provide for uninterrupted management
in case of incapacity.
- You can avoid interruption of management
at death.
- It's a good way to pass property to charity
and save taxes at death.
- You can change your mind.
Disadvantages
- Initial cost and trouble of setup. Property
must be transferred to the trust.
- It slightly complicates subsequent dealings
with the property.
- It may require payment of an annual trustee's
fee if someone besides yourself is trustee.
- At time of termination, there may be fees.
- There are no immediate tax advantages.
Irrevocable Living Trust
Advantages
- You see your trust work.
- You observe your trustee in action.
- You avoid probate and court costs.
- You probably will save some fees.
- It is a good way to pass property to charity.
- You save any taxes there may be on the property
going to charity upon your death.
- With irrevocable charitable remainder trusts
created while you are living, you can get
an income tax deduction during your life.
- You may save taxes on capital gains on property
placed in a charitable remainder trust.
Disadvantages
- Property must be transferred, so there are
initial costs and energy in setting up the
trust.
- You lose all control over the property with
most irrevocable trusts.
- It requires annual fiduciary accounting
and possible tax returns.
- It may require payment of annual trustee
fees.
- There may be fees at the time of trust termination.
- You can't change your mind and get the property
back.
Return to the Glossary.
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Revised:
July 10, 2008 15:52
.