Over the last two decades, the popularity of Living Trusts has skyrocketed. No longer a tool just for the rich, Living Trusts are one of the most common estate planning tools in use today.
This legal arrangement, usually drafted by an estate attorney, creates a separate entity called a Living Trust. A Living Trust is called that simply because it is created while you're alive (as opposed to a "testamentary" trust created after death).
The Parties Involved
The Living Trust document itself names three different parties. The individual (or couple) that establishes the Trust is named the Grantor (also referred to as the Trustor).
The Trustee is the person named by the Trust as the controller of the Trust's assets (and in many cases, the Trustees are the same people as the Grantors).
On the receiving end, the Beneficiaries are the heirs that will benefit from the Trust once the Grantor's have passed away.
History of Living Trusts
Living trusts date back to 16th century England, when landowners used trusts to circumvent the King. Constantly concerned with landowners owning too much land, the King made sure he could oversee the distribution of property when a landowner died. This process of overseeing transfers was the very first form of probate.
Trusts with the Church helped landowners skip the process altogether. Landowners would deed their property to their Church, in exchange for the promise that the Church would grant the land back to heirs when the landowner died.
In colonial times, the first settlers in America brought English custom and law with them across the Atlantic. This included the concepts of probate and trusts. Trusts were long considered the domain of the rich, since they were often expensive to create.
It wasn't until the 1960's that revocable living trusts gained popularity. And while the increased acceptance of living trusts ticked off many attorneys (since they stood to lose probate fees), the living trust was here to stay.
For a detailed history of Living Trusts, download our Living Trust Special Report.
Who Needs A Living Trust?
Almost anyone with an estate of $100,000 or more can benefit from having a living trust. Estates of $100,000 or more are often subjected to probate in their state of residence, which can cost anywhere from 2%-4% of the estate's value in court and legal fees.
The living trust also is useful for individuals subject to estate taxes. Through a living trust, a couple is able to maximize their Unified Credit to its fullest. It even accomplishes protection for individuals wanting to avoid conservatorship.
Advanced living trusts can be structured for complicated family situations. Re-married spouses, with children from a previous marriage, can use an advanced revocable trust to ensure kids receive their proper inheritance. Our FREE Living Trust Special Report offers a checklist for individuals to determine if the living trust is an appropriate strategy for them.
Living Trusts avoid probate, since they are completely private. Because a trust is recognized as a separate legal entity, distributions can be made by a Trustee to named beneficiaries without any involvement from the courts.
The courts maintain no control over the Trust's assets, and do not tie up the assets in a lengthy (and costly) probate process. The Trustee simply distributes assets to named heirs, but only if those assets have actually been placed inside the Trust.
Funding Your Living Trust
Once established, almost anything can be placed in a trust: savings accounts, stocks, bonds, real estate, life insurance, and personal property. In "funding" the trust, you simply change the name or title on your assets to the name of your Trust. Many people worry about losing control of assets; however, that is not the case within a carefully-constructed Living Trust.
Always There For You
Because the Trust is essentially controlled by one individual (the Trustee), that person can carry out your wishes when you're not able to. For instance, if you have children from a previous marriage and wish to leave them an inheritance, specific instructions to the Trustee will ensure that they receive what you had requested.
If you're institutionalized or unable to care for yourself anymore, the Trust can still function and make distributions as needed. The Trustee has a fiduciary responsibility to see that your requests are fulfilled exactly. He or she can even provide care and protection for disabled relatives or handicapped children in accordance with your wishes.
Reducing Estate Taxes
The Living Trust also minimizes estate taxes by fully utilizing every individual's Unified Credit. The Estate Tax Credit, as mandated by Congress, currently shelters up to $5.12 million from estate taxes. With only a will in place, a married couple will receive a single $5.12 million exemption.
However, if a Living Trust with "A-B Provisions" is in place and one spouse dies, the Living Trust separates into two separate trusts (commonly referred to as an A-B Trust).
In an A-B Trust, each of the two separate trusts receives its own $5.12 million exemption, meaning a total of $10.24 million is sheltered from estate taxes.
Any amounts over that $10.24 million will be subject to estate taxes, with rates climbing as high as 35%.
Living Trusts are easy to start-up and require little on-going maintenance. They afford an extra measure of protection against loss of control, and ensure that your assets remain out of the public record even after your death. However, they do not provide protection against creditors or divorce, and do not reduce estate taxes for estates over $5.12 million in value ($10.24 million if married).
FREE Special Report
Each family's situation is different. Some will benefit from a living trust, while others may not.
If you are married or have assets over $100,000, you owe it to your family to investigate the best means to preserve your hard-earned wealth.
And for estates over $2 million, you may want to combine a living trust with another advanced estate planning technique.
For a FREE Special Report on Living Trusts, or help in finding an attorney to draft one, click here!