ADVANTAGES OF A LIVING TRUST

Revocable living trusts become the subject of living room conversation in 1967 when the book “How to Avoid Probate” was at the top of the best seller lists.  Trust were number one on the author’s list of devices for avoiding probate.  Now, more and more attention is being given to the revocable living trust as a tax-saving, probate-avoiding, and otherwise useful device for managing family estates.

While trusts of this type may take many different forms and variations, essentially they will provide income to you for life, may be amended or completely revoked during your life and will manage and distribute the principal remaining after your death to your beneficiaries.

The following are some important advantages of a Revocable Living Trust:

MANAGEMENT OF ASSETS:  The trustee is responsible for the management, including investment decisions, safeguarding of assets, and record keeping.  The Trustee’s knowledge, experience, and access to information, particularly when a professional fiduciary is used, can often be helpful in increasing both income and principal.

PROTECTION DURING ILLNESS, INCOMPETENCY OR ABSENCE.:  The Trust continues to operate while you are unable to attend to your affairs.  If you like to travel, you can do so, secure in the knowledge that your interests will be fully protected.  The trust in conjunction with a Durable General Power of Attorney will allow you to avoid the legal expenses of guardianships and conservatorships. 

CONTINUITY:  Upon your death, the trust continues to operate uninterrupted by probate proceedings.  If the trust provides income to be paid to your spouse, distribution will be according to plan.  Usually, there is a delay when a Will is probated while assets are collected by the personal representative.

PROBATE AVOIDANCE:  In a continuing trust, assets do not go through the probate process.  This saves attorney fees and expenses that would otherwise be incurred.  However, this advantage should be weighed against the possible need for the trustee to render a formal accounting which entails some expenses as well.  Taking property through probate results in expenses as high as ten percent of the value of the property.  Whenever people own real property in more that one state, it is advisable to place that property in a living trust.  If you do so before death of the Grantor, you will avoid multiple probates in each state where real property is located.  When a trustee or beneficiary dies, the trust does not die, but continues to own the property.

PRIVACY:  A trust generally provides more privacy that a Will which becomes a matter of record.

LESS EASILY CHALLENGED THAT A WILL:  Disappointed relatives often try to upset a Will on the grounds of undue influence or mental incompetence.  This is much more difficult to prove when a trust existed during the creator’s live which was operated under his observation and was subject to his power to revoke

COORDINATED ESTATE PLAN:  The revocable living trust, when used in conjunction with a properly drafted Will and properly designated life insurance, pension plan, and profit sharing plan beneficiaries, places all assets into the trust for centralized control and distribution.  Without the trust, the estate may be distributed piecemeal, resulting in delays and unintended inequities.

QUALIFICATION OF TRUSTEE:

Competent family members or friends who live out of state might not qualify to serve as your personal representative in probate.  However, with the revocable living trust, you can designate and qualify any person as the trustee without regard to out-of-state residency.  You may want two trustees – a money wise trustee (the disinterested co-trustee) and a people-wise trustee (the family co-trustee).

ESTATE TAX SAVINGS: 

SAVES CAPITAL GAINS IN COMMUNITY PROPERTY STATES:  In community property states, property that would otherwise have been joint tenancy property (the usual way to avoid probate for small estates) may be placed advantageously in the trust.  In this way it may be designated a community property belonging to the grantor husband and wife.  If the property is in joint tenancy, on the death of one spouse, only the deceased spouse’s share of the property (representing a one-half interest in each parcel of property) receives a new carry-over basis at death.  This value is based upon the appraisals used for the estate tax return and the complicated formulas relating to establishing the new carry-over basis.  However if the assets are owned as community property, not only does the decedent’s share of the property receive the new and higher tax basis, but also the survivor’s share.  This means the survivor’s share, to the extent that the tax basis on that share has been raised, will avoid capital gains tax on that share when the property is eventually sold.  What the preceding language is saying is that you can save tax dollars at the time of the death of the first spouse because you avoid some of the capital gains tax, when the surviving spouse sells the property.

FLEXIBILITY AND MOBILITY:  The living trust may be moved from one state to another without having to be licensed.  There are very few recordation requirements when moving a trust.  Compared with corporations and partnerships which carry fees and recordation requirements, a trust can change location with relative ease.  The exception to this is countries such as France, Germany, Spain, and Italy, which operate under Nepoleonic Code, do not recognize the legal entity of trusts.  If you will be creating the trust or moving it to a non-common law company we recommend you consult with an attorney for proper wording for your trust documents.

SPARE YOUR LOVED ONES THE HASSLES OF PROBATE:  Having a Living Trust gives a family or individual the feeling of security.  They know that their estate has been taken care of and that the family will be spared the hassles of Probate.  All decisions will be made in advance without burdening someone with being the executor of an estate, or heirs trying to second-guess the intent.

SPEEDY TRANSFER OF PROPERTY TO HEIRS:  With the Living Trust, the settlement of the estate is quick, painless and delay free matter handled according to your wishes.  Since the transfer of property is done by your family instead of the legal system, the transfer can take place in almost not time at all. 

GOOD FEELINGS:  All of these advantages translate into the savings of money, time, emotions, court proceedings, legal fees and peace of mind for you.