Reasons to Implement a Living Trust

By Regan Rondinelli-Haberek

A living trust is a popular estate planning tool that is most often used to avoid court-supervised settlement of an estate, or probate. A living trust is attractive to many because it is "user-friendly." Unlike other trusts, the individual creating the trust, or grantor, can act as the trustee during his lifetime. The grantor can also make changes to the trust, giving him ultimate control over trust management. Under many circumstances, a living trust can be invaluable in securing your legacy

Living Trust

A trust, in general, is a legal entity that holds title to and manages assets for an intended beneficiary. Trust formation requires at least three roles: a grantor; a trustee, who is responsible for managing trust property; and a beneficiary, who will ultimately receive trust property. Unlike other types of trusts, a living trust allows the grantor to act as trustee during his lifetime -- this is what allows the grantor to make changes to the trust. The trust will make provisions for a successor trustee upon the grantor’s death.

Avoiding Probate

The most common purpose of a living trust is to avoid probate. When a decedent leaves a last will and testament, the will must be authenticated through a court process in order to have legal effect. This process is called probate, and it has a reputation for being lengthy and costly. A living trust avoids probate because the trust, and not the estate of the person who died, actually owns the assets in the trust. These assets pass to beneficiaries by the terms of the trust, with no court involvement. Unlike the personal representative of a probate estate, who will have to await a court order, the trustee of a trust can begin gathering and distributing trust property upon the decedent’s death.

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Estate Tax Advanatges

For larger estates, a living trust may also provide limited relief from estate taxes. Estate tax is based on the amount of your “gross estate”, minus certain deductions. Estate taxes can be fairly complicated, and you should consult an attorney or tax professional to discuss tax implications of any estate planning decisions. There is currently a federal estate tax, and some states also impose a separate estate tax. The federal and most state estate tax schemes include an exemption. The federal estate tax exemption is $5.25 million, as of 2013. This means that the first $5.25 million in your estate will not be subject to a federal estate tax. For those who have enough assets to be affected by the exemption, a living trust can reduce some of the tax burden. It does so by allowing married individuals to shelter assets up to the exempted amount in a family trust (also known as a B trust), upon the first spouse’s death.

Privacy and Control

A trust can hold title to several different types of assets including, but not limited to, financial accounts, retirement accounts and real property. While a will allows you to dictate who will receive your property upon your death, a trust allows you to detail more specifically how assets should be distributed to beneficiaries. For instance, if you make the trust a beneficiary of a financial account, the trustee can manage this account so as to limit tax consequences. However, if you left the account to an individual, he may liquidate the account and lose most of the proceeds to taxes. A living trust, or any trust for that matter, also allows your estate to be settled privately; a probate proceeding becomes public record once probate is opened. Although trust administration is generally a private matter, a trust beneficiary can request court intervention in certain circumstances.

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Living Trust for Married Couples


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Living Trusts & Surviving Spouses

A trust is an estate planning device created when a grantor surrenders his property to a separate legal entity for the purpose of benefiting select individuals. A trustee named by the grantor holds the trust property in his name for the benefit of the beneficiaries and manages the property according to the trust's terms. A living trust is one established by a living grantor, often with the grantor serving as the first trustee. The rights of the spouse to the trust property when the grantor dies depends on state law and the terms of the trust.

A Living Trust Explained

A living trust is a legal device that establishes how your property is to be transferred upon death, but goes into effect during your lifetime. The grantor, who puts his property into the trust, assigns a trustee to administer the trust on behalf of a beneficiary. There are several types of living trusts. In comparison, a testamentary trust is created by the terms of a will and does not go into effect until death. Living trusts avoid probate but testamentary trusts do not.

How Does a Living Trust Protect Assets?

Creating a trust to holds assets can help the grantor while he is alive and continue to serve him after his death. A living trust is created during the grantor's lifetime. It transfers title (ownership) of the grantor's property into the trust to be managed by a trustee for the benefit of a designated beneficiary. There are different types of living trusts and each can protect assets in a different way -- or not at all.

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