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.
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.
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).
type, revocable or irrevocable, has advantages and disadvantages.
Revocable Living Trust
- You see your trust work.
you are not your own trustee, you observe the trustee in action.
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.
can provide for uninterrupted management in case of incapacity.
can avoid interruption of management at death.
a good way to pass property to charity and save taxes at death.
can change your mind.
- 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.
time of termination, there may be fees.
are no immediate tax advantages.
- You see your trust work.
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 on your death.
- With irrevocable
charitable remainder trusts created while you are living, you can get an income
tax deduction during your life.
may save taxes on capital gains on property placed in a charitable remainder trust.
here to return to the glossary.
- 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.
requires annual fiduciary accounting and possible tax returns.
may require payment of annual trustee fees.
may be fees at the time of trust termination.
can't change your mind and get the property back.
Please note, individual financial circumstances will
vary. The information on this site does not constitute legal or tax advice.
As with all tax and estate planning, please consult your attorney or estate
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