Living trusts can avoid probate and reduce
or eliminate federal estate taxes for your estate. This webpage provides
details about living trusts, their benefits, and their problems.
How can a living trust help your estate?
1. A living trust will
avoid probate for all assets that have been transferred
to the trust. Probate is a costly, time-consuming process that
many estates do not need.
However, there are some cases in which having a living trust
will not provide protection against probate because the estate
has few probate assets and probate is not required. Click here for more information:
Keeping your estate out of probate.
2. A trust also can avoid a conservatorship, which is a court proceeding that
time-consuming and restrictive. Conservatorships are needed when
an individual can no longer manage his or her financial affairs.
A conservator is appointed by a court and given the power to
manage the conservatee's financial affairs, and also make decisions
concerning the conservatee's living arrangements. A properly
prepared trust can provide a successor trustee who will manage
the trust for the benefit of the trustor, sometimes avoiding
the need for a conservatorship.
3. For married couples with estates subject to the federal
a living trust can reduce or eliminate federal estate taxes by
setting up an Exemption Trust. Click here for more information:
Exemption Trusts and Bypass Trusts
How is a living trust set up and funded?
1. A trust document
is prepared that usually names the trustors (the persons who
are setting up the trust) as the trustees of the trust. The trustees
are responsible for managing the trust and its assets. The trust
usually nominates other persons, banks, or trust companies as
successor trustees. The successor trustee(s) will take over management
of the trust after the death, resignation, or incompetency of
the original trustee(s).
2. The trust also provides for distribution of the estates of
the trustors after the deaths of both trustors. These provisions
can be the same as those found in a will and might include trusts
for younger beneficiaries, gifts to charities, etc.
3. Depending on the size of the estate, the trust might also
include provisions that will reduce or eliminate federal estate
4. After the trust is signed, the trustors transfer their assets
to the trust. If this is not done, additional legal work, possibly
including a probate of these assets, will be required after the
deaths of the trustors.
of living trusts:
1. Assets held by the
trust will not need to be probated. Legal fees for probating an estate
are usually much higher than the fees for administering a trust.
Probates can also take a year or longer to complete, but a trust
administration usually can be completed in a much shorter time.
2. If a trustor becomes mentally incompetent, the successor trustee
can take control of the trust and avoid the cost of a conservatorship
in most cases. Conservatorships are often used in situations
in which someone can no longer manage his or her own financial
affairs or personal care. A conservatorship is a court-supervised
proceeding that can involve substantial legal fees.
3. Federal estate taxes can be reduced or avoided. For more information
about federal estate taxes, click here:
4. The trust is revocable
during the lifetimes of the trustors. If an Exemption Trust is
used, part of the trust will become irrevocable after the death
of the first trustor.
5. The trust can also include
a disclaimer trust, intended to reduce or
eliminate federal estate taxes.
of living trusts:
1. Preparation of a living
trust costs more than a will.
2. Transferring assets to the trust involves costs and paperwork
not required for less elaborate estate plans.
3. Administration of an Exemption Trust can involve additional
effort for the surviving spouse. For more information, click
here: Trust Administration
4. Refinancing real
property that is owned through a trust may require transferring the
property out of the trust before the refinancing, and then putting
it back into the trust. A few lenders do not require that property
be taken out of the trust when it is refinanced.
If you have a living trust, you
should also have:
Advance Health Care Directive and HIPAA authorization.
Durable Power of Attorney for Financial Purposes.