Articles

Just What Does a Living Trust Do?

Many of us have heard the term "Living Trust" without knowing just exactly (or even generally) what this type of trust may be. What does it do? Is it beneficial? Do you need one? Why? The usual response is that a Living Trust is a tool used for estate planning; but that is not a complete definition.

A Living Trust is a document which allows the person who establishes the trust to accomplish three primary goals: first, to make provisions in the Living Trust to take care of themselves and their assets in the event of disability, second, to provide for the distribution of their assets at death, and third to have the person or persons chosen by the Trustor to be fully in charge as the "Trustee" of this arrangement. A major attraction of the Living Trust is to do all this without going through any required court proceedings.

Some people have the opinion that a Living Trust is just a replacement for a Last Will and Testament, and nothing else. The fact is that the distribution at death which is accomplished by the Will is only a part of the function of a Living Trust. There is another consideration which a Will does not (and cannot) address: what will happen to you and your assets in the event you should become incapacitated before you pass away? Will someone you have chosen take over and take care of you and manage your assets, perhaps your spouse or an adult child? Or will there have to be a Chancery Court action to appoint someone with the needed power to do these things for you?

The Living Trust not only provides the structure to make your chosen distributions at death, but possibly of greater importance is the provision therein allowing your designated successor trustee to act on your behalf without the necessity of Court supervision and its accompanying expense. A Living Trust estate plan consists of several documents, not just the Living Trust itself.

To give some insight into how a Living Trust functions, most people who set up a Living Trust act as their own Trustee for so long as they are competent and/or alive. In many instances a husband and wife would be joint Trustees. If either is later unable to serve, then the other may act independently. When the original Trustee cannot act, then another person such as an adult child or perhaps a corporate trustee is designated to serve.

There are no additional tax returns required for your revocable Living Trust, so there are no additional complications there. You still own your own assets, can buy or sell as you see fit without the permission of anyone. You still get your homestead exemption and your home mortgage interest deduction. And while on the subject of taxes, for a husband and wife with a taxable estate, a Living Trust will allow the preservation of as much of the death tax exemption equivalent as is needed when the first spouse passes away, and this is done without the need for probate.

The avoidance of probate is one of the most frequently cited reasons for having a Living Trust estate plan. Many people are unaware of just what probate actually may be, but they want to avoid it. In today's world that is a worthwhile objective, and this avoidance is a benefit that flows from having a Living Trust and should not be taken lightly.

According to a survey done by the American Bar Association over seventy per cent (70%+) of the American public has no estate plan. That is truly a shocking statistic. And only a small portion of those with a plan have a Living Trust. So what is the best for you? It depends on your objectives.

One final thought: We are all likely to live longer than our parents and grandparents. But we are not guaranteed to be in good condition. So a plan that will provide protection both during incapacity as well as at death will be appealing to a much larger group than in the past. And don't forget to have an Advance Health Care Directive.

Do something. Don't just be a part of that majority referenced above. Put in place an effective estate plan. Your family will thank you for it, and you just may sleep better.