A living trust is a written declaration and
contract in which you state that you (as "settlor") are transferring your
property into a living trust for the benefit of yourself during your lifetime (lifetime
"beneficiary") and then for the benefit of your heirs (remainder
"beneficiaries"). You will be the "trustee" of your living trust which
means that during your lifetime, you will have complete control over the living trust's
assets. The "successor trustee" you name will take control over your living
trust in case of your death or incapacity. In addition, you will have the power to change,
amend, or revoke your living trust at any time during your lifetime.
The main advantage of a living trust is the avoidance of probate. Probate is a
state court proceeding in which your property is transferred to your heirs. All Wills must
be probated; not so with a living trust. Since probate only affects assets you own at the
time of your death, assets placed in a living trust are not owned by you, therefore, there
is no probate on those assets. Probate will generally cost about 3-4% of the value of the
probate assets and will take from 9 months to 2 years (absent litigation or contested
claims) to complete. You save probate fees by using a properly funded living trust.
Confidentiality and Continuity of Ownership
Confidentiality and Continuity of Ownership:
Since probate is a court proceeding, your Will and the valuation of your assets are open
to public inspection. A living trust, however, is confidential and the transfer of assets
from the living trust is kept from public view. When the settlor of a living trust dies or
becomes incapacitated, the successor trustee continues the administration of the living
trust. With a living trust, there is no "gap" period between the time of death
and the appointment of the executor which occurs under a Will. Also, the continuity of the
living trust is preserved if the settlor becomes incapacitated through illness or accident
through the successor trustee. In this case, the living trust would be administered for
the benefit of the grantor.
Initially a trust has greater
costs with respect to its formation and implementation than a will, but those costs are
usually a small percentage of the amount saved through the avoidance of probate costs at
the time the grantor dies. Additionally, if
confidentiality and continuity of ownership are important objectives, then the trust is
the document of choice. Conversely, if
confidentiality and continuity are not important objectives, and if the initial cost and
administration of a trust outweigh the potential savings through the avoidance of probate,
then a will should be used.
For additional information on Trusts and Estate Planning in
general, please see the Tax Prophet's section Estate Planning.
All contents copyright ? 2008 Robert L. Sommers, attorney-at-law. All rights reserved. This internet site provides information of a general nature for educational purposes only and is not intended to be legal or tax advice. This information has not been updated to reflect subsequent changes in the law, if any. Your particular facts and circumstances, and changes in the law, must be considered when applying U.S. tax law. You should always consult with a competent tax professional licensed in your state with respect to your particular situation. The Tax Prophet(TM) is a trademark of Robert L. Sommers.