One popular estate planning technique, especially with older clients and clients with real property in multiple states, is a Revocable Living Trust. A Living Trust is a trust that you create today naming yourself as trustee. You are the person who creates the trust (the grantor), the person who manages the trust (the trustee) and the person for whose benefit the trust is established (the beneficiary). Think of it as a personal holding company.
Living trusts generally allow you to manage your assets in the same way that you do today. You retain total control over your assets. In the event of your disability or incapacity, you designate in the trust the person or persons to manage the assets for your benefit for the remainder of your lifetime.
In the event of death, the trust continues as you instruct and is managed by the person or persons whom you have named as trustee for the benefit of your spouse and/or children. The assets can be divided and distributed to your spouse or other family members in the manner you direct. The assets may be distributed outright or may be retained in trust for these family members for life or as you might direct. In this regard, the trust is a substitute for a will.
Living Trust Benefits
- It is an estate planning vehicle into which your assets are titled, thus allowing you to assemble and consolidate your assets for ease of management by you or your designated trustee during life.
- In the event of your disability, the trust is managed by your designated trustee for your benefit as you direct. A Living Trust is better than a power of attorney standing alone and avoids a court supervised conservatorship in the event of your disability.
- In the event of death, the Living Trust avoids probate if it is properly funded. Probate is the court proceeding which supervises the administration and the distribution of your estate at death. Avoiding probate may save your family substantial court costs and legal fees.
Living Trust Disadvantages
- Restructure of Assets: The greatest disadvantage of a Living Trust is that you must restructure the ownership and/or beneficiary designations on literally every asset that you own: real property must be deeded into the trust; bank accounts must be changed to reflect that the trust is the owner; stocks or bonds must be retitled in the name of the trust; life insurance policy ownership and/or beneficiary designations need to be modified; and IRA and retirement plan beneficiary designations may need to be modified. Think of the steps required at your death to transfer the ownership of assets through a probate process from your name into your estate and then to the various beneficiaries. With a Living Trust, you are probating your estate while you are alive but without the necessity of a court proceeding.
- Complexity: Clients are often concerned that a Living Trust adds complexity to their world. The documents are complex in that they address the management of assets during life, the management of assets in the event of disability and the management of assets at death. In reality, a Living Trust is little other than a personal holding company which you create, own and control. It may look and sound complicated, but the administration process is simple; you remain in control of your assets.
Living Trusts are not for everyone. They only work to their maximum potential if the ownership and/or beneficiary designations of all assets are properly structured. Properly drafted, funded and administered. they provide the simplest possible method for managing assets during life, in the event of disability and distributing assets at death.