Why Do You Need A Living Trust?

For most of us, it is very difficult to come to terms with our own mortality. To actually contemplate one’s own death is painful. Consequently, very often such thoughts are avoided. However, if you wish to insure that your desires regarding the disposition of your property and possessions after your death are fulfilled, you must confront your mortality and plan accordingly.

Most people’s lives are centered on living and, in one way or another, on a close and intimate group of loved ones. These may be relatives, friends, church members, coworkers, or business associates. They are looked to for love, support, and assistance in times of trouble and are asked to share in times of joy. They are often cared about in ways that are difficult to express. But during your life, you at least have the opportunity to show your love and concern in many forms.

“You can’t take it with you” is a well-worn phrase, but it does strike to the core of the problem of providing for your property and money to be distributed in some fashion on your death. Your entire life has been spent accumulating possessions and wealth for your own comfort and the comfort of your loved ones. Through the proper use of a Living Trust, you have a once-in-a-lifetime opportunity to personally decide what will happen to your accumulated wealth and possessions when you are gone. It is entirely your personal decision. Indeed, it is your legal privilege to make this decision. No one but you has the power to decide, prior to your death, how and to whom your property should be distributed on your demise. But in order to do so, you must take the initiative and overcome the understandable difficulty of these decisions. If you do not take the initiative, upon your death an impersonal court will decide who will receive your wealth.

To actually sit down and decide how your property and possessions should be divided amongst your loved ones in the event of your own death is not an easy task. However, it is you alone who knows your wishes. The property and possessions that you own may be land, your home, personal household furnishings, keepsakes, heirlooms, money, stocks, bonds, or any other type of property. It may be worth thousands of dollars or it may be worth far less. If you are like most people, you want to insure that it is passed on to the persons whom you choose. But then again, if you are like most people, you have put off making these decisions.

What Is a Living Trust?

A trust consists of assets of a Grantor (the person who creates the trust) which are managed and distributed by a Trustee to benefit one or more Beneficiaries (those persons or organizations who will receive property under the trust). A Living Trust provides for all three of these designations to be held by the same person. You are the Grantor, Trustee, and Beneficiary of your Living Trust while you are still alive. Upon your death, your chosen Successor Trustee succeeds you in the management of the trust and the distribution of your trust assets to your chosen beneficiaries. A Living Trust is a legal document that allows for the transfer of property to the persons or organizations named in the Living Trust upon the death of the maker of the Living Trust. A Living Trust is only effective for the on-death distribution of property that has been previously transferred to the Living Trust. A Living Trust can be changed, modified, or revoked at any time by the Grantor prior to death. Another name for a Living Trust is a Revocable Trust, because during your lifetime you may revoke, or cancel the trust at any time. Upon your death, however, your Living Trust becomes irrevocable and can no longer be changed or altered in any way.

An increasingly popular estate planning tool, Living or Revocable Trusts can be effectively used to avoid probate. Probate is an official series of court proceedings which begin with either proving a Will is valid or determining that no will existed and continues with the distribution of the deceased person’s property. To avoid probate, a Living Trust generally provides that all or most of a person’s property be transferred to trust ownership. The owner of the property generally retains full control and management of the trust as trustee. In the trust document, beneficiaries are chosen, much the same as in a Will. The terms of the trust can actually parallel the terms of a Will. The difference is that, upon the death of the creator (Grantor) of the trust, all of the property that has been transferred to trust ownership passes immediately and automatically to the beneficiaries without any court intervention or supervision and without an official probate proceeding.

The owner of the property retains full control over the property until death and the creator of the trust can terminate this type of trust at any time prior to death. After the trust itself is prepared, all of the property that a person wishes placed in the Living Trust (stocks, bonds, bank accounts, real estate deeds, car titles, etc.) is actually transferred to the Living Trust.

It is equally important to understand that for a Living Trust to be valid, it must generally be prepared, signed, and notarized according to certain technical legal procedures. Although a Living Trust is perfectly valid if it is written in plain English and does not use technical legal language, it must be prepared, signed, and notarized in the manner outlined in our forms. These procedures are not at all difficult and consist generally of carefully preparing your Living Trust in the manner outlined in our forms, and signing it in the manner specified.

In some cases (for example, those involving extremely complicated business or personal financial holdings or the desire to create a complex trust arrangement) it is clearly advisable to consult an attorney for the preparation of your Living Trust. However, in most circumstances and for most people, the terms of a Living Trust that can provide for the necessary protection are relatively routine and may safely be prepared without the added expense of consulting a lawyer.

To purchase any of the forms mentioned above, or to obtain forms related to the preparation and management of a Living Trust, please click to appropriate link below.

Advantages of a Living Trust

Avoiding the Expense and Delay of Probate

There are many reasons why it is desirable to have a Living Trust. One of the most important is that through the proper use of a Living Trust most or all of the expense and delay of probate is avoided. During proceedings, an executor (a person appointed in a Will) or a court-appointed administrator is authorized to collect, appraise, and distribute the assets of the deceased. Normally, the proper use of a Living Trust entirely eliminates or dramatically lessens the expenses of probate, since the disposition of all of your property has been planned in advance by you and takes place automatically upon your death.

Many people desire to avoid having their property be subject to probate proceedings. Although in some situations the probate process has been abused, there are valid reasons for allowing your property to be handled through probate after your death. It provides a process by which the improper distribution of your assets is guarded against by the probate court. Having your property distributed through a probate process also puts a definite limit on the length of time that a creditor can file a claim against your estate.

The drawbacks of probate are that it can substantially delay the distribution of your property while the probate process continues. The probate of an estate can take, generally, from four to 18 months, and sometimes much longer. Additionally, probate costs can be very significant. Court costs, appraisal fees, lawyer’s fees, and accounting bills can all cut deeply into the amount of property and funds that Will eventually be distributed to your beneficiaries. However, for small estates (generally, under $100,000.00) most states have simplified probate procedures that can be handled without lawyers and can substantially reduce these costs. The probate process itself is complex and will, in almost all cases, require the use of an attorney. The proper use of a Living Trust can allow all or most of your property to pass directly to your chosen beneficiaries immediately upon your death, thus bypassing the probate process entirely. For many, this reason alone justifies the use of a Living Trust.

Avoiding Having the State Decide Who Will Receive Your Property

There are, however, numerous other valuable attributes of a Living Trust. Perhaps the next most important reason to have a Living Trust is to insure that it is you who decides how your estate is distributed on your death and to be assured that those loved ones whom you wish to share in your bounty actually receive your gifts.

What happens to your property and possessions if you do not have a valid and legal method by which to have your property distributed to your chosen beneficiaries (those persons or organizations to whom you decide to leave property) upon your death? Law books are filled with many unfortunate cases in which, because of the lack of a valid Living Trust or Will, the true desires and wishes of a person as to who should inherit their property have been frustrated. If there is no valid Living Trust or Will to use for direction, a probate judge must give a person’s property to either the spouse, children, or the closest blood relatives of the deceased person. This result is required, even in situations when it is perfectly clear that the deceased person did not, under any circumstances, want those relatives to inherit the property.

Without such a valid Living Trust or Will before him or her, a judge must rely on a legislative scheme which has been devised to make for an orderly distribution of property in all cases where there is no valid Living Trust or Will. This scheme is present as law, in one form or another, in all 50 states and is generally referred to as intestate distribution.

The terms of state intestate distribution plans are very complex in most states. In general, a person’s spouse is first in line to receive the property when there is no Living Trust or Will at death. Most states provide that the spouse and children will either share the entire estate or the surviving spouse will take it all in the hopes that the spouse will share it with the children. Generally, the spouse will receive one-half and the children will receive one-half. In many states, if a person dies without a valid Living Trust or Will and is survived by a spouse but not by any children, the spouse will inherit the entire estate and the surviving parents, brother, sisters, and any other blood relatives to the deceased will be entitled to nothing.

If there is no surviving spouse or children, the heirs, or blood relatives of the deceased will receive the estate. If there is someone or several persons within the next closest relationship level (for example, parents or siblings) who are alive on the death of the person, then these relatives will receive all of the person’s property or share it equally with all others alive who are in a similar relationship level. Once a level of blood relationship is found in which there is at least one living person, all persons who are more distantly related inherit nothing.

In addition, these legislative distribution plans are set up on the assumption that family members are the only parties whom a deceased person would wish to have inherit his or her property. Thus, without a Living Trust or Will, it is impossible to leave any gifts to close friends, in-laws, blood relatives more distant then any alive, charities, or organizations of any type. If there is no Living Trust or Will and if there are no blood relatives alive, the state confiscates all of a person’s property under a legal doctrine entitled escheat.

As an example of a typical legislative intestate distribution scheme, the following is a general representative outline of the various levels of distribution that are set up in many states. Keep in mind, however, that this example is only an illustration of the method that states may use and is not intended to be used in determining how your own estate would be divided. Check on the listing in our State Law Digest for your own state’s intestate distribution plan for specific details:

If a spouse and children of the marriage are surviving: $50,000.00 and one-half of the balance of the estate will go to the spouse and one-half of the balance of the estate will go to the children equally. If one of the children has predeceased the parent and leaves surviving children (grandchildren of the deceased parent), then the grandchildren will split the deceased child’s share.
If a spouse and children of the deceased who are not from the present marriage are surviving: One-half of the balance of the estate will go to the spouse and one-half of the balance of the estate will go to the children equally. If one of the children has predeceased the parent and leaves surviving children (grandchildren of the deceased parent), then the grandchildren will split the deceased child’s share.
If a spouse, but no children or parents of the deceased are surviving: All of the estate will go to the spouse.
If a spouse and one or both parents, but no children are surviving: $50,000.00 and one-half of the balance of the estate will go to the spouse and one-half of the balance of the estate will go to the parents equally. If only one parent is surviving, that parent gets the entire one-half share of the estate.
If there are children of the deceased, but no spouse surviving: All of the estate goes to the children. If one of the children has predeceased the parent and leaves surviving children (grandchildren of the deceased parent), then the grandchildren will split the deceased child’s share.
If one or both parents, but no spouse or children are surviving: All of the estate will go to the parents equally, or the entire estate will go to the surviving parent.
If there is no spouse, no children, or no parents surviving: All of the estate will go to brothers and sisters equally. If a brother or sister has predeceased the deceased sibling and has left surviving children, their children will split the deceased brother or sister’s share.
If there is no spouse, no children, no parents, and no brothers and sisters or their children surviving: One-half of the estate will go to the maternal grandparents and one-half will go to the paternal grandparents. If the grandparents on either side have predeceased the decedent, their children will split their share.
If there is no spouse, no children, no parents, no brothers and sisters or their children, and no grandparents or their children surviving: The estate will pass to the surviving members of the closest level of blood relatives: aunts, uncles, nephews, nieces, great-grandparents, great-uncles, great-aunts, first cousins, great-great-grandparents, second cousins, etc.
If there are no surviving kin: The estate will be claimed by the state under the doctrine of escheat.

Many disastrous consequences can result from having your property distributed according to a standardized state plan. Take, for example, a situation in which a person and his or her spouse die from injuries sustained in a single accident, but one spouse survives a few hours longer. If there is no Living Trust or Will, the result in this scenario is that the property of the first one to die passes to the spouse who survives. A few hours later, on the death of the surviving spouse, the property automatically passes only to the relatives of the spouse who survived the longest. The relatives of the first person to die can inherit nothing at all. Obviously, this would not normally be the desired consequence. Under the typical state scheme, luck and chance play a large role in deciding who is to inherit property.

Each state has a complicated and often different method for deciding which particular family members will take property when there is no Living Trust or Will. However, the results are often far from the desires of how the person actually wished to have the property distributed. Obviously, under this type of state distribution of your property, the individual circumstances of your family are not taken into consideration at all nor are any intentions that you may have had, regardless of how strongly you may have expressed them during your lifetime. The only way to avoid having the state decide who is to receive your property is to have prepared a legally valid Living Trust or Will. If you die without a valid Living Trust or Will, the state essentially writes one for you on its own terms.

Appointing a Trustee to Administer Your Property

Another very important reason for having a Living Trust is the ability to appoint a Successor Trustee of your own choice. A Successor Trustee is your personal representative for seeing that your wishes, as contained in your Living Trust, are carried out after your death and that your taxes and debts are paid. A Successor Trustee also collects and inventories all of your property and is in charge of seeing that it is distributed according to your wishes as expressed in your Living Trust.

Typically, a spouse, sibling, or other close family member or trusted friend is chosen to act as Successor Trustee. However, it may be any responsible adult whom you would feel confident having this duty. It may even be a local bank or trust company. In that case of course, there will often be a substantial fee charged to your estate for the completion of these generally routine duties by the corporate Successor Trustee. If you choose an individual, he or she should be a resident of your home state. The Living Trust forms on our site enable you to appoint your Successor Trustee and an alternate Successor Trustee so that, in the event your first choice cannot perform, it is still your personal choice as to who will administer your Living Trust.

If you do not have a Living Trust or you do not choose a Successor Trustee in your Living Trust, a judge will appoint someone to administer the distribution of your property. Often it will be a local attorney, court official, or bank officer who may not know you or your beneficiaries at all. Your estate will then be distributed by a stranger who will charge your estate a hefty fee for the collection and distribution of your assets.

By appointing your own Successor Trustee, you are also able to waive the posting of a bond by your Successor Trustee. A bond is a type of insurance policy that a Trustee would normally have to purchase to insure that he or she carries out his or her duties properly. The cost of the bond would come out of your Trust Estate (all of the trust’s assets). You also provide that your Successor Trustee will not receive any compensation for serving as Trustee. This will allow more of your assets to reach your beneficiaries, rather than paying for the expenses of administration of your estate.

Appointing a Trustee to Administer Property for a Minor Child

For those with minor children, the appointment of a trustee for any assets to be provided to the children is another very important matter which may be accomplished through the use of a Living Trust. You may set up a Children’s Trust within your Living Trust and have your Successor Trustee administer your children’s property until a time when you feel that your children will be able to handle their own affairs. Instructions to provide for this alternative are simply stated in a Living Trust, but are more difficult to accomplish without one. If such instruction is not provided for in a Living Trust and a minor child is left money or property by way of the state intestate succession laws, the courts will generally decide who should administer the property. Such court-supervised guardianship of the property or money will automatically end at the child’s reaching the legal age of majority in the state (usually 18 years of age). At this age, without a Living Trust to direct otherwise, the child will receive full control over the property and/or money. This may not be the most prudent result, as many 18-year-olds are not capable of managing property or large sums of money. With a Living Trust, it is easy to arrange for the property or money to be held in trust and used to benefit the child until a later age, perhaps 21, 25, or even 30 years of age or older.

To purchase Living Trust forms that include provisions for children’s trusts, please click the appropriate link below:

Advantages of a Living Trust

There are a number of other significant advantages to using a Living Trust to distribute your property upon your death:

If you own real estate in a state other than that of your legal residence, the use of a Living Trust will allow that real estate to be passed to your beneficiary without an out-of-state probate proceeding.
If you become incapacitated, a Living Trust allows your chosen Successor Trustee to manage your property. Without a Living Trust, a “conservator” or “guardian” would need to be authorized by a court to handle such matters. The legal proceeding to accomplish this is often long and expensive.
With a Living Trust, the details of your estate plan remain confidential. Only your chosen Successor Trustee will need to know the actual specifics of your intentions. And even your Successor Trustee need only know the details of your estate plan after your death.
While you are alive, there are no required trust recordkeeping requirements. You need not have a trust bank account, file a trust federal or state income tax return, or maintain any separate trust records. Of course, it is a good idea to keep careful track of the assets that you will place in the Living Trust.
You can amend or revoke your Living Trust at any time, without any formal proceedings or actions.
Finally, no lawyer is necessary to handle the distribution of your assets upon your death. If you follow the instructions in our Living Trust kits carefully, your chosen Successor Trustee should have no difficulty in distributing your assets to your chosen beneficiaries. This can save not only time, but considerable money as well.

Disadvantages of a Living Trust

There are a few disadvantages to using a Living Trust to distribute your property upon your death:

First, setting up a Living Trust entails some paperwork. You must carefully prepare a Trust document and the property and beneficiary schedules that will accompany it. You must also make certain that you have the selected property clearly transferred to the trust. If the property has a title or ownership document (such as a car or a piece of real estate), you must change the ownership documents to reflect that the ownership is being transferred to the trust. If the property has no ownership document, then simply listing the chosen property on the Trust Schedule of Assets will effectively transfer the property to the Trust.
In a very few situations and jurisdictions, there may be some limited transfer taxes, such as real estate transfer taxes or vehicle title transfer fees. In the vast majority of states, transfers of real estate to ownership by a living trust are exempt from any transfer taxes. Even if imposed, such transfer taxes are generally very minimal. Please check specifically with your jurisdiction if this is an issue.
There may be a few banks or finance companies that will balk at refinancing a property that has the title held by a trust. Most companies should be satisfied if you provide them with your trust document and all of the transfer documents (such as the new deed or title).
Finally, unlike a probate proceeding, there is no cutoff date for the filing of creditor’s claims against the estate of a person who dies with a Living Trust. For the vast majority of people, this is not a problem as most estates do not have large unpaid liabilities. However, if you feel that your estate may be subject to large claims, you may wish to use a Will, rather than a Living Trust, to distribute your property upon death.

Why You Still Need a Will

Even if you have used a Living Trust and the various estate planning tools outlined in our Planning Your Living Trust guide to attempt to have your estate avoid probate, a Will is still highly recommended. There may be assets that you have neglected, forgotten about, or that will not be uncovered until your death. If you have used a trust, joint property agreements, and other estate planning tools, these unknown or forgotten assets may wind up passing to your heirs as intestate property and causing probate proceedings to be instituted. Through the use of a simple Will, you can avoid this possibility.

To purchase the forms mentioned above, or to obtain more information about preparing a basic Will, please click the appropriate link below.