How can a living trust help your estate?

  1. For most clients, a living trust will avoid probate for all of the assets that have been transferred to the trust. Probate is a costly, time-consuming process that many estates do not need.
    However, there are some cases in which having a living trust will not provide protection against probate because the estate has few probate assets.
  2. A trust also can avoid a conservatorship, which can be expensive, time-consuming and restrictive. Conservatorships are needed when an individual can no longer manage his or her financial affairs. A conservator is appointed by a court and given the power to manage the conservatee's financial affairs, and also make decisions concerning the conservatee's living arrangements. A properly prepared trust can provide a successor trustee who will manage the trust for the benefit of the trustor, sometimes avoiding the need for a conservatorship.
  3. For married couples with more than $1,000,000 in net worth, a living trust can reduce or eliminate federal estate taxes by setting up an Exemption Trust.

How is a living trust set up and funded?

  1. A trust document is prepared that usually names the trustors (the persons who are setting up the trust) as the trustees of the trust. The trustees are responsible for managing the trust and its assets. The trust usually nominates other persons, banks, or trust companies as successor trustees. The successor trustee(s) will take over management of the trust after the death, resignation, or incompetency of the original trustee(s).
  2. The trust also provides for distribution of the estates of the trustors after the deaths of both trustors. These provisions can be the same as those found in a will and might include trusts for younger beneficiaries, gifts to charities, etc.
  3. Depending on the size of the estate, the trust might also include provisions that will reduce or eliminate federal estate taxes.
  4. After the trust is signed, the trustors transfer their assets to the trust. If this is not done, additional legal work, possibly including a probate of these assets, will be required after the deaths of the trustors.

Advantages of living trusts

  1. Assets held by the trust will not be probated. Legal fees for probating an estate are usually much higher than the fees for adminstering a trust. Probates can also take a year or longer to complete, but a trust administration usually can be completed in a much shorter time.
  2. If a trustor becomes mentally incompetent, the successor trustee can take control of the trust and avoid the cost of a conservatorship in most cases. Conservatorships are often used in situations in which someone can no longer manage his or her own financial affairs or personal care. A conservatorship is a court-supervised proceeding that can involve substantial legal fees.
  3. The trust can provide detailed instructions to the trustee on the manner and distribution of assets . This can prevent squandering of assets by a beneficiary who is too imature or incompetent to controll the funds.
  4. Federal estate taxes can be reduced or avoided.
  5. The trust is revocable during the lifetimes of the trustors. If an Exemption Trust is used, part of the trust will become irrevocable after the death of the first trustor.

Disadvantages of living trusts:

  1. A living trust costs more than an estate plan that involves just a will.
  2. Transferring assets to the trust involves costs and paperwork not required for less elaborate estate plans, such as a will.
  3. Administration of an Exemption Trust can involve additional effort for the surviving spouse.