LIVING TRUST

Wow!!! You have the opportunity to get a LIVING TRUST. Here is a quick Who, What, Why, How and When on this helpful topic.

WHAT IS A LIVING TRUST?

A living trust, also called an inter vivos trust, is any trust established during your lifetime. Unlike the testamentary trust, which is part of your Last Will and Testament and only comes into being after your death, the living trust is established and funded while you are alive and can make sure your wishes are followed.

As the person creating the trust and transferring assets into it, you are called the grantor. The grantor designates the trustee, who is the person or entity in charge of administering the trust, and the beneficiaries, who are the individuals receiving the trust's proceeds.

WHO SHOULD HAVE A LIVING TRUST?

If you wish to avoid probate costs, provide care and comfort for yourself, your spouse or your beneficiaries (whether or not there is a legal or mental impairment), plan your estate, or establish guidelines on the investment and expenditure of funds, you should examine the benefits of a living trust.

WHY DOES A LIVING TRUST AVOID PROBATE COSTS?

Whereas a testamentary trust requires a probate proceeding to be established and most if not all of the assets go into the testamentary trust through the probate court, the title to the property in the living trust is transferred during lifetime. This means significant savings in court costs, executor's fees, and attorney's fees. Additional benefits of avoiding probate may include faster settling of your estate, more privacy and less paperwork.

HOW CAN A LIVING TRUST HELP PROVIDE CARE AND COMFORT?

With appropriate authority in the trust document, the trustee of a funded living trust can handle all of your financial affairs. There are no court requirements on paying bills or accounting. In addition, there are recognized fiduciary standards in administering assets. A trust will properly administer and distribute funds over decades for many different purposes:

  1. For children until they are financially mature;
  2. For individuals with mental or other challenges;
  3. To protect from creditors;
  4. For a couple who do not want to be a burden to their children;
  5. For anyone who has no one else to help provide financial care and guidance, and
  6. To provide for a favorite charity such as Hospice, Fernside, or Bethesda.

HOW DOES A LIVING TRUST ASSIST WITH INVESTMENTS AND TAXES.

The trustee will handle all the administrative duties concerning your investments including collecting dividends and interest, and buying and selling stock and other property. A professional trustee such as a bank trust department is in the business of protecting, preserving and increasing your assets.

Title to property should be transferred to the trust. In the event of the death or incompetency of the grantor, the designation of a successor trustee not only avoids the cumbersome probate process and custodianship proceedings but provides continuity. The ability to manage and immediately transfer property without delay may enable the property to bring the best price. When a business is involved the ability to make quick decisions without the approval and requirements of probate court could be more important than the savings in probate costs.

The living trust normally provides for income to be paid to the grantor and may be amended or revoked during the grantor's lifetime. It will become irrevocable at the grantor's death. Where the grantor or spouse is a trustee or co-trustee the trust will be ignored for income tax purposes and no income tax return should be filed for the trust. All the income is taxed to the grantor. Income from assets for the trust should be reported under the social security number of the grantor and not the tax identification number for the trust.

WHEN SHOULD I SET UP A TRUST?

Establish a living trust whenever any of the positive benefits discussed in this article may be helpful to you, your loved ones, or a favorite charity.