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The Living Trust

A living trust is a revocable, intervivos trust.  Revocable means that the trust can be altered, amended, or revoked at any time.  Intervivos means that the trust is established and operated during your lifetime.

 

A living trust is made up of three separate positions: trustor (the creator of the trust), trustee (the person who manages the property in the trust), and beneficiary (the person for whom the trust was established and designed to benefit).  When you establish a living trust, you may occupy all three positions.  Whatever you could do with your assets prior to the time you established your trust, you can do with your assets when they are owned by your trust.

 

A living trust is simply another way in which to hold title to property, such as with a partnership or corporation.  The living trust is a legal document whereby you as trustor, or you and your spouse as trustors, create the trust and transfer legal ownership of your property into the trust.  You as trustee, or you and your spouse as co-trustees, manage the property in the trust for your own benefit because you and/or your spouse are the beneficiaries of your trust.

 

The living trust will not create adverse tax consequences.  The trust is considered a grantor trust for tax purposes.  All income and losses generated by the trust are reported on your individual tax return.  Upon death, the living trust benefits become fully effective by avoiding probate and all of the problems associated with it.  

 

Assets owned by a living trust at the time of death will be distributed according to the terms of the trust agreement, and a court probate proceeding is unnecessary.  The successor trustee will have the legal ability to sign on bank accounts and to execute deeds and other necessary transfer documents.  He or she can do whatever the trust documents dictate, distributing trust assets to your children or other beneficiaries when and how you determine.  The living trust can avoid the long delays and attorney’s fees associated with probate court.  Other benefits of a living trust are described below.

 

Avoid family litigation.  A will is much easier to contest than a living trust.  If all of your property is held in a living trust at the time of your death, your estate will avoid probate.  A disgruntled heir is less likely to contest a trust because of increased litigation delays and costs.  A living trust containing a no-contest provision will further hinder litigation.  Such a provision will cause an heir who is unsuccessful in litigation to lose any inheritance he or she was to receive under the terms of the trust.

 

Avoid probate in other states.  If you own property in states other than the one in which you live, your heirs will probably need to commence probate in each additional state where you own real property.  A living trust that owns your real property can avoid the inconvenience and expense of ancillary probate administration.

Avoid a conservatorship proceeding.  If you are found to be incompetent under the guidelines established in the trust instrument, your spouse, if named as a co-trustee, or the person you name as your successor trustee, can immediately manage the assets in the trust for your benefit.  A living trust avoids the expense and delay of a conservatorship proceeding but a will does not.  A living trust also allows you to choose the person whom you want to manage your assets, rather than allowing the court to do so.  Using a trustee is less expensive than a conservatorship proceeding and much more flexible because a conservator is usually required to file an annual inventory and accounting with the probate court.  The report keeps the probate court informed on what is being done with a disabled person’s property. 

 

Guarantee family privacy.  Probate proceedings are a matter of public record.  A living trust can provide privacy to your family with respect to your personal and financial affairs.  A living trust is not probated or recorded anywhere.  It is a private document.  Your will is filed with the probate court along with a list of your assets and their values, together with the names and addresses of your beneficiaries.  The probate records will also display what your beneficiaries receive from your estate.

 

Provide easy management and disposition of assets.  A successor trustee, the person who manages your trust after your death, has the same power to manage and sell trust assets as you had when you managed the trust.   However, the executor of your will may be subject to substantial statutory limitations, including delays for court approval.  The trustee is free to distribute the income and principal of the living trust immediately after your death, retaining only an adequate reserve for debts and taxes.