OVERVIEW OF REVOCABLE LIVING TRUSTS
A trust is an arrangement under which one person, called a trustee, holds legal title to property for another person, called a beneficiary. You can be the trustee of your own living trust, keeping full control over all property held in trust.
A “living trust” (also called an “inter vivos” trust) is simply a trust you create while you’re alive, rather than one that is created at your death.
A living trust will be used as a mechanism to manage your property before and after your death, as well as provide how those assets, and the income earned by the trust, are distributed after your death. If you should become incapacitated or disabled, the trust is in place to manage your financial affairs, usually by a successor trustee, if you were serving as trustee.
Because the trust takes effect while you are alive, it is known as a revocable Living Trust. As the name suggests, you can revoke the trust agreement or appoint a different trustee at any time. Property can be added or removed from the trust as needed. You remain in complete control of your property, you are merely handing the key to someone else to protect the contents.
The big advantage to making a living trust is that property left through the trust doesn’t have to go through probate court. In a nutshell, probate is the court‑supervised process of paying your debts and distributing your property to the people who inherit it.
Property you transfer into a living trust before your death doesn’t go through probate. The successor trustee ‑‑ the person you appoint to handle the trust after your death ‑‑ simply transfers ownership to the beneficiaries you named in the trust. In many cases, the whole process takes only a few weeks, and there are no lawyer or court fees to pay. When all of the property has been transferred to the beneficiaries, the living trust ceases to exist.
Is it a hassle to hold property in a living trust?
Making a living trust work for you does require some crucial paperwork. For example, if you want to leave your house through the trust, you must sign a new deed, showing that you now own the house as trustee of your living trust. This paperwork can be tedious, but the hassles are fewer these days because living trusts have become so common.
You might ask yourself why do you need a trust, especially if you already have a valid will. As you consider this question, take a few minutes to review the reasons below:
You avoid probate. Most states require individuals with assets of $30,000 or more (or over $10,000 in real estate) to have their estates formally probated when they die. In some states this figure may be as low as $10,000; in other states, only estates with $60,000 or more in assets need go through the probate process.
You avoid federal estate taxes. Whether or not you put your assets in a trust, the Economic Recovery, Act of 1981 allows for a federal tax exemption (called the Unified Tax Credit Exemption) on all estates. But if you are married and your estate exceeds this exemption, or if your estate appreciates in value by the time you die, your heirs may face considerable federal estate taxes without the help of a carefully prepared trust.
A trust is hard to challenge in court. One of the biggest risks associated with filing a Will is that someone may challenge its validity in court. It may be someone who has been left out of the Will or who received much less than he or she expected. The embarrassment, cost and nuisance of such cases can be avoided if you set up a Living Trust.
Privacy is assured. One challenge with probate is that any interested party may see what you left to whom simply by looking up your Will at the local probate court. This cannot occur with a Trust, since the schedule of assets itself does not have to be publicly filed.
You remain in control of your assets. A Trust guarantees that your beneficiaries are provided for. It also gives you full use of your assets while you are alive, although if there are co‑trustees, they both must agree to the disposition of assets. Because of this, it is essential that you appoint someone you know well as a co‑trustee if you choose to have a co‑trustee. As long as you are alive and competent, you can change your trust at any time. Don’t feel like you are giving up control of your belongings by forming a trust. If anything, you are gaining control by ensuring your assets will go where you want them to.
A Trust provides conservatorship rights. Property is not the only thing a trust protects. You may provide conservatorship through a Living Trust, meaning that you name a person to make your important healthcare decisions and manage your affairs if you become incapacitated.
Trusts are legally recognized in all 50 states.
If you’re considering creating a Living Trust…We Can Help!
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