Living trusts remain a popular and affordable estate planning vehicle. A revocable (or living) trust is a trust that is funded with part or all of the property of the creator (grantor) of the trust. By serving as trustee, the grantor retains control of the property and also has the right to revoke the trust and reclaim ownership of the trust’s property. By itself, the trust does not offer any estate tax savings, since the trust assets remain in the donor’s taxable estate. However, if it is properly set up and funded, it can provide several advantages, including the following:
Avoiding Probate. In states where executor fees and attorney fees are based on a percentage of a person’s estate that goes through probate, a living trust can cut costs significantly because assets owned by the trust are not subject to the probate process.
Asset Administration. Another benefit of a living trust is that it can help avoid a court-supervised guardianship in the event the trust creator becomes unable to manage his or her own affairs. Of course, if the only reason for creating the trust is to avoid a guardianship proceeding, it may be simpler (and cheaper) to grant a durable power of attorney over all of one’s assets to a trusted relative or friend, rather than to establish the trust.
Multi-state Administration. An ancillary administration (meaning administration of a person’s estate in more than one state) is necessary when individuals own real property outside their state of residence. In some situations, this process is fairly simple; other times it is not. As an alternative to an ancillary administration, a living trust can be established to hold title to the property located in another state.
Privacy. An inventory of assets generally must be filed in a probate administration. This document becomes a matter of public record, subject to inspection by anyone. Thus, individuals who are concerned about the privacy of their financial affairs can use a fully funded living trust to prevent a public record of their assets at death.
Although a revocable living trust can be a valuable planning tool, it’s certainly not for everyone. For example, the benefits of the trust normally are not fully realized unless all of a person’s assets are placed in the trust. Some people will find the inconvenience of having assets such as cars, boats, homes, and checking accounts titled in the name of the trust rather than their own name too much to deal with on a day-to-day basis. Thus, they’ll either not bother to properly fund the trust when it is set up, or as the years go by, they’ll become remiss in maintaining the proper paperwork.
Please do not hesitate to contact us if you have questions concerning a living trust.
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