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What is a Living Trust?

A living trust is yet another way that you can avoid probate and ensure that your assets are passed on according to your wishes. A trust is not a tangible object, but rather, exists only on paper. However, a trustee must be assigned to administer a trust. You can be the trustee of your own living trust, or if your trust is set up with your spouse or significant other, you can be joint trustees. Being the trustee of your own living trust allows you to maintain control over all of your property that you place into the trust, and a living trust allows you to change and amend it as you see fit during your lifetime.

Types of Trusts

There are many different types of trusts available to you. It is possible to make a living trust for yourself only. You also have the option of making a trust with your spouse or significant other. If you are in a relationship and wish to make your own trust without your significant other, this can also be accomplished.

How does a Living Trust work?

If you set up a trust on your own, that is, without your significant other, you alone have sole control over all of the property that is in the trust. You can add property to the trust, remove property to the trust, sell property from the trust, and change beneficiaries as often as you would like. Upon your death your appointed successor trustee (the person you have designated as responsible for administering your trust after your death) will distribute your property and assets to your beneficiaries as set out in the terms of your trust.

If you are a part of a couple and wish to set up a shared living trust with your significant other, the trust works slightly different. With a shared living trust each member of the couple is a co-trustee. This means that each member has full control over the community property in the trust, but each member also retains his or her interest in the property. Separate property can also be added to the trust, with the owner retaining control over the property throughout their lifetime. Either spouse has the ability to revoke the trust at any time, returning the property to the situation that it was prior to setting up the trust. Upon the death of the first spouse, the shared living trusts splits into two trusts: Trust 1 and Trust 2. Trust 1 contains the property of the deceased spouse, except anything left to the surviving spouse, while Trust 2 contains the property of the living spouse. The surviving spouse becomes the trustee of both trusts. Trust 1 becomes an irrevocable trust, meaning that the surviving spouse has no right to change the terms dictated in the trust. It then becomes the duty of the surviving spouse to turn over the property of Trust 1 to the beneficiaries designated by the deceased spouse.

What are the advantages of a Living Trust?

Besides the greatest benefit that a living trust provides, probate avoidance, living trusts also offer other benefits which make them very attractive for many people. Living trusts allow you to specify your wishes if you were to become incapacitated due to major illness or injury. With a living trust you can set up a trust for minor children to ensure that their needs are met should something happen to you. You can pass on possessions and assets to children, siblings, your spouse, or anyone else you desire. Also, unlike a will, a trust is a private document which is unnecessary to file with any government agency, so that your wishes also remain private. Most important, if you are the trustee of your own living trust, is that you retain the right to control the assets in your living trust, as well as change the trust to suit the changing needs of your beneficiaries.

Does a Living Trust save on taxes?

Unfortunately, a living trust is not used to save on estate taxes, or any other taxes for that matter. The benefit of a living trust is that you retain control of the assets in the trust; however, the IRS also recognizes that you are in control of these assets and as such they are considered yours. Your living trust will only go into effect in the event of your death, until that time you are the legal owner of everything contained in your living trust. If you have a large estate and are concerned that you may be assessed a large amount of estate taxes, an A-B Trust may be the right option for you. Please see the section on A-B Trusts for further information.

Choosing a Trustee

In the case of a living trust, you would serve as your own trustee. You would retain this position as long as you are alive, or capable of making decisions for yourself. However, it is important to designate a successor trustee to administer the trust upon your death of incapacitation. Often, your successor trustee will be your spouse or significant other, but it can be anyone that you deem trustworthy enough to make administer your trust according to your wishes.

Other things to consider with respect to Living Trusts

There are a few other things to consider when you are contemplating a living trust. First, a living trust is not the be-all-end-all of estate planning. The living trust, while extremely useful, is not always all encompassing, and is not the most efficient estate planning device for all of your assets. Other estate planning devices you might consider are strategic gift giving, pay on death designations, and joint tenancy. An experienced estate planning attorney can help you to ensure that you utilize the vehicles most applicable to your personal situation to pass your assets to your beneficiaries in the most timely, cheapest, and hassle-free way available.