What is a living trust?

A living trust is a flexible tool you may use in creating your estate plan. A living trust may be used to delay the distribution of assets after your death, avoid probate, or minimize estate taxes, depending on how it is drafted. A living trust also acts as an asset protection device to keep your assets safe.

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Do I need a last will if I have a living trust?

A living trust and a last will function together. A living trust is only part of a complete estate plan. There are valid reasons for keeping some of your assets outside of the trust. Alternatively, you may acquire assets in the future that you forget to transfer to the trust. When you die, these non-trust assets will need to be transferred to the living trust. A pour-over will will take any assets kept outside of the trust during your lifetime and put them in your trust at death.

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How does a living trust protect my assets?

The living trust document we provide includes a provision that the assets of the trust are not subject to the claims of creditors of any beneficiary. In other words, no one can sue a trust beneficiary and collect a judgment from trust assets before the beneficiary is entitled to receive them under the terms of the trust.

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I heard that by having a living trust I can avoid probate, is this true?

Yes. The function of probate is to collect all the assets of a decedent, settle debts and claims of the estate, and transfer the net assets to the proper beneficiaries. The process is administered by a probate court judge and is a function of state law. By creating a living trust and transferring assets to it during your lifetime, those assets are not regarded as belonging to you when you die. Legally, those assets belong to the trustee of the trust. Since those assets do not belong to you, they are not part of your estate when you die, and there is no need for the probate court to transfer those assets to anyone. They have already been transferred prior to your death

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How is my estate distributed in a living trust?

In whatever way you provide in the trust agreement. In the document we prepare for you, there are three basic options for asset distribution: 1) everything to your spouse or partner when you die; 2) all of the income of the trust to your spouse or partner during his or her life, and then everything to your descendants when your spouse or partner dies; or 3) everything to your descendants when you die.

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How is a living trust viewed for income tax purposes?

During your lifetime, any living trust created by you is disregarded for tax purposes. That is, the income of the trust is reported on your personal income tax return. A living trust does not file its own separate tax return until after you die. Therefore, typically, a person would not apply for a taxpayer identification number for a living trust until after the death of the grantor.

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How does a living trust differ from a testamentary trust? A testamentary trust is any trust created in a last will. By definition, a testamentary trust must go through probate, is only effective after your death, and is irrevocable. On the other hand, a living trust avoids probate, becomes effective during your lifetime, and is revocable during your life. A living trust is also sometimes known as a revocable grantor trust. Back to the top

Can I be the trustee of my trust? You can be the trustee during your lifetime. Since all trust assets are held in the name of the trustee, this means you can continue to fully control all of your assets as long as you live and are not incapacitated. Back to the top

What about property I still owe money on, can I include that in my living trust? Yes. For example, a house that you still have a mortgage on can be placed in trust. Keep in mind that if you still owe on the mortgage at the time of your death, the debt will not be discharged because the mortgage company will have a lien recorded against the property. Either the debt will have to be paid out of your estate and/or the trust, or the person who receives the property will have to make the mortgage payments. Back to the top

Will I ever need to update my living trust? Possibly. There are certain times when you should consider updating or changing your living trust. Consider amending your trust in the event of a marriage or divorce, a birth or adoption of a child, a move to another state, a change in your finances, or the death of a beneficiary or a named trustee. Back to the top

What do I need to do to update my living trust? To update or change your living trust is rather easy. In many cases, you can simply cross out language in your trust agreement you want to omit, and hand write new language you want to include. Be sure to initial and date any amendments made this way. Alternatively, if your changes will be extensive, you can have a formal amendment document prepared, which you will need to sign and have notarized. You may even have an all-new trust agreement prepared, which revokes the prior version. Back to the top

When do I transfer my property into my living trust? The intention of a living trust is that you will transfer assets to it during your lifetime. If you fail to do this, your assets will not avoid probate, and they will not be sheltered from creditor claims during your lifetime. When you choose to transfer your assets is up to you, but it is often best to do it when the living trust is first created so you do not forget about it. Back to the top

Are there some kinds of assets I should not transfer to my living trust?

Possibly. Some common examples include insurance policies, retirement plans, and jointly held assets. Both insurance policies and retirement plans have a beneficiary designation procedure, which normally allows you to name a primary and a secondary beneficiary. People often name a spouse or children as primary beneficiaries and their living trust as a secondary beneficiary.

There may be reasons to avoid naming the trust as a beneficiary at all, such as when you want a particular benefit to be distributed in a different manner than your trust assets. Jointly held assets usually don’t need to be transferred to your living trust because the joint owner gets those assets in full automatically by operation of law. However, joint assets are not sheltered from creditor claims. If you have questions about what assets to put into your living trust, check with your financial advisor.

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Will my living trust ever be made public? Your living trust is not made public because it does not have to go through the direct management of probate court. Consequently, your assets and their values will not be made public. Your beneficiaries would still have to be notified about the living trust, however. Back to the top

Can I include pets in my living trust? Yes, you can include your pet in your living trust as an asset to be passed to a named beneficiary. Before naming someone to care for your pet, however, you may want to ask them first. It might be wise to allocate money to the person you leave your pet to for vet visits, food, etc. Back to the top

How is a living trust viewed for estate tax purposes?

A living trust is also disregarded for estate tax purposes. Just because assets held in trust avoid probate does not mean they avoid estate taxes. The assets of your living trust will be included in your estate for the purpose of determining if any estate taxes are owed.

It is possible for a pair of living trusts to be set up to minimize estate taxes for married couples, but this makes for a highly complex and technical living trust agreement which is only required for people having an estate in excess of the federal unified credit against estate taxes. The amount of this credit is $2,000,000 in 2007 and 2008, and $3,500,000 in 2009. The living trust agreement we provide does not include any estate tax planning, so it is not designed for people who have estates larger than the credit against estate taxes.

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Does having a living trust mean I don’t need a last will? No. You still need a pour-over will to collect any assets not transferred to your trust during your lifetime, and transfer them to the trustee so your distribution plan can be put into effect. In addition, there are some things you cannot do in a living trust, which can only be done in a last will, such as naming a guardian for any minor children. Back to the top