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WHAT
IS A LIVING TRUST?
A revocable inter vivos
trust (living trust) is
created for the purpose
of holding ownership to
an individual's assets
during the person's
lifetime, and for
distributing those
assets after death.
The individual who
creates the trust (the
grantor) names a person
who will serve as
trustee and will follow
the trust's terms after
the grantor dies. While
alive, the grantor
usually may serve as a
trustee and control the
assets even though they
belong to the trust.
WHY IS IT CALLED A
LIVING TRUST?
It
is called a living trust
because it is created
during the grantor's
lifetime, and takes
effect during the
grantor's lifetime. By
contrast, a will does
not take effect until
after death.
WHAT IS
"FUNDING" THE
TRUST?
For a
living trust to take
effect, title to the
grantor's assets must be
transferred into the
trust. For example,
title to any bank
accounts, stock
certificates or real
estate owned by the
grantor must be
transferred into the
trust. Contrary to the
impression created by
many living trust
salespeople, the grantor
must take affirmative
steps to transfer assets
and fund the trust.
Merely executing the
living trust itself will
not cause the trust to
become funded.
DOES A LIVING TRUST
AVOID PROBATE?
Perhaps the biggest
advantage of a living
trust is that it does
not have to go through
probate, as does a will.
However, there are other
estate planning devices
which avoid probate,
such as a joint tenancy,
a life insurance policy,
and right of
survivorship for a bank
account , and individual
retirement, pension or
Keogh accounts.
In
addition, living trust
salespeople often
overstate the cost of
probate and the length
of time it takes to
probate a simple will.
WHAT IS A "POUR_OVER"
WILL?
A "pour_over"
will is necessary to
distribute any property
that is acquired in the
name of the grantor
after the living trust
was established, or any
property that was not
transferred into the
trust in the first
place.
The use
of "pour_over,"
together with a living
trust ensures that
assets not held in trust
will be distributed in
accordance with the
wishes of the deceased,
and not by the laws of
intestacy.
A "pour_over"
will, like any other
will, must go through
probate if the decedent
dies owning assets which
must pass through the
will.
DOES A LIVING TRUST
AVOID THE IMPOSITION OF
ESTATE TAXES?
With
proper training, a
living trust can be a
valuable estate and tax
planning device.
However, there is no
inherent estate tax
advantage to using a
living trust. While a
trust may contain
provisions taking effect
at death which do save
on taxes, the identical
tax savings can be
contained in the
grantor's will instead
of a living trust.
DOES A TRUST AVOID
INCOME TAXES?
There
are no substantive
income tax advantages in
the use of a living
trust. The grantor is
treated as the owner of
the trust for income tax
purposes, and must
report all trust income
on his or her personal
return under the
"grantor
trust" income tax
rules.
IS THERE A LIVING
TRUST MORE PRIVATE THAN
A WILL?
A will
becomes a matter of
public record during the
probate process, and a
copy can be obtained
upon request to the
Probate Court. A living
trust is a private
document that is not
subject to public
scrutiny.
However,
a "pour_over"
becomes a matter of
public record when it is
submitted for probate,
and the "pour_over"
often incorporates the
living trust by
reference. In addition,
when title to real
property is transferred
into a living trust as
part of the funding
process, the consent of
the mortgagee is
required. Before giving
consent to the transfer
of mortgaged property,
the mortgagee typically
requires that the living
trust document be
recorded, with the deed,
at the office of the
county clerk. The living
trust can then become
part of the
publicly_accessible
records.
CAN A LIVING TRUST BE
CONTESTED?
Yes. A
trust can be contested
in a special proceeding.
There is no blanket rule
that a living trust
cannot be contested.
WILL THE USE OF A
LIVING TRUST INSTEAD OF
A WILL SAVE LEGAL FEES?
The
legal fee for
representing an estate
would most likely be the
same, whether the assets
pass in trust or by
will. The only legal
costs saved by using a
living trust are the
costs incurred in a
probate proceeding.
However, the costs of
probating a simple, un
contested will are often
minimal. In addition,
one must consider the
extra legal fees that
can be entailed in
drafting a living trust
as opposed to a will,
and the additional legal
fees entailed in funding
the trust.
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