Living Trust (Inter Vivos Trust)

What is a Living Trust?

A Living trust is a legal document in which the trustors or grantors hold all three positions--trustor or grantor, trustee and beneficiary. A living trust looks a lot like a will. In fact, it does what most people think a will does and much more. Because there is no probate with a living trust, all expensive court proceedings and delays are eliminated, your privacy is preserved, and emotional stress is minimized. It can reduce or eliminate estate taxes by allowing the use of two tax exemptions. You may design a revocable living trust that allows you to change your beneficiaries and who manages your assets up until the time of your death. A living trust is created while you are alive and then becomes irrevocable after your death. It is a legal document that contains your instructions for what you want to happen to your assets if you were to become incapacitated or die.

Benefits of a Living Trust

• Eliminates probate and the related costs.
• Can reduce or eliminate estate taxes.
• Allows quick and efficient distribution of assets to beneficiaries.
• Preserves privacy completely confidential.
• Allows for optional professional asset management with a corporate trustee.
• Lets you keep control, even at physical or mental incapacity and after your death.
• Prevents a conservatorship/guardianship at physical or mental incapacity.
• Minimizes emotional stress on your family.
• Avoids problems of joint ownership.
• Inexpensive, easy to set up and maintain.
• Can be changed or cancelled at any time.
• Protects minor children from court-imposed guardianships.
• Can protect dependents with special needs.
• Provides effective prenuptial protection for people with prior marriages.
• Very hard to contest.

Who should have a living trust?

Married or single, old or young -just about everyone can benefit from a living trust. If you have children (even more so if you are a single parent) or own any titled property, a living trust can help you. If you want to be sure your loved ones will be spared from probate if something happens to you, you should have a living trust. Do you have specific desires or goals for the management and disbursements of your assets? Do you have a child with special needs? Do you have children from a previous relationship? Do you own property in two or more states? Do you have assets that are increasing in value? If you answered yes to any of these questions a trust would be a wise decision. Small estates can benefit from a living trust just as much as large estate.

What is Probate?

Probate is the legal process through which the court makes sure that, when you die, your debts are paid and your property is distributed according to your will. If you do not have a will, the state in which you live has written one for you. The probate court can also take control of your estate if you become physically or mentally incapacitated.

Why do we want to avoid probate?

It is expensive. Legal fees and other costs can consume 6 to 20% of an estate. The National Average in 2004 was 11.01%. It takes time, often 1-2 years or longer. During part of this time, the assets are usually frozen. Nothing can be distributed or sold without the court's approval. If your family needs money to live on, they must request a living allowance from the court. Your family has no privacy. Probate files are open to the public, so anyone (including a business competitor) can see what you owned and what debts were owed. This also invites disgruntled heirs to contest your will and exposes your family to unscrupulous solicitors. Your family has no control. The probate process has control. Having someone outside the family telling them who gets what and when and having to pay for outside supervision can be very frustrating for the family.

How does a living trust avoid probate?

A trust is recognized as a separate legal entity. When you set up a living trust, you transfer all of your property from individual name to the name of your trust, which you control -such as from "John and Mary Smith, husband and wife" to "The John and Mary Smith Living Trust." Legally you no longer own anything (everything now belongs to your trust), so there is nothing to probate when you die or if you become disabled. The concept is very simple, but this is what keeps you and your family out of probate.

Is it hard to transfer property into a living trust?

No, your attorney, bankers, trust officers, financial advisors, investment brokers, etc can help you. Make sure to change title to all real estate (local and out- of-state) and other property with formal titles (checking and savings accounts, stocks, CD's mutual funds, etc).

Do I lose control of the property in my trust?

Absolutely not! You keep full control over your property. As trustee of your trust, you can do everything you could do before such as-buy and sell property, make changes, even cancel your trust at anytime (remember it is revocable). Nothing changes but the names on the titles.

Who will manage my Trust?

You can manage your own trust. You and your spouse can be co-trustees, so either can act or have instant control if one becomes incapacitated or dies. If something happens to both of you, or if you are the only trustee, your handpicked successor trustee will step in and carry out your wishes as prescribed in your trust documents.

What does a successor trustee do?

At physical or mental incapacity, your successor trustee looks after your care and manages your financial affairs for as long as necessary, using your own assets to pay the expenses. When you recover, you automatically resume control. At your death, your successor trustee pays your debts, and distributes your property according to your instructions. If you desire your trust to continue, your successor trustee will manage your trust for the beneficiaries continuing to follow your instructions.

Who can be a successor trustee?

Successor trustees can be individuals (adult children, other relatives, or trusted friends) and/or a corporate trustee. If you choose an individual, you should name more than one in case your first choice is unable to serve. By using family members as successor trustees, you can avoid the cost of management fees charged by corporate trustees.

How does a living trust save on estate taxes?

If the net value of your estate when your die is more than the exemption amount for the year in which your die, your estate will owe federal estate tax. These taxes will start at tax rate of 46% in 2006. If you are married, an A-B Living Trust will allow you and your spouse to pass an amount equal to two times the Federal Estate Tax exemption amount tax-free to your beneficiaries. The tax savings would be $920,000 on a 4 million dollar estate in 2006. The only way to take full advantage of the Federal Estate Tax Credit for both spouses is through the use of a trust, either a Living Trust or a Testamentary Trust. Only the Living Trust will avoid probate.

Is a Living Trust expensive?

No! A living trust is extremely cost effective. When compared to the cost of probate and potential tax savings, a trust can save you and your estate many thousands of dollars.

How long does it take to get a Living Trust?

It should only take two to four weeks to prepare the legal documents after you make decisions about plans for your estate.

Should I have an attorney do my trust?

Absolutely! Deal with people who specialize in living trusts. An experienced estate planner can provide valuable guidance and assistance for your situation and assure the legal documents are prepared properly. Avoid generic "do-it-yourself" kits and form books. They cannot address every family's unique needs and the end result could be dangerous.