Coggins, Larreau & Lythgoe, PC

What is a Living Trust?

  A Trust is a contractual arrangement under which one person, called a Trustee, holds legal title to property for the benefit of another person or persons, called Beneficiaries. The person creating the Trust is called the Grantor. Different kinds of Trusts can help you avoid Probate, reduce estate taxes, or set up long-term property management. A Trust may be revocable and amendable or may be irrevocable and not amendable.

  A Living Trust (also called an "Inter Vivos Trust”) is simply a Trust you create while you're alive, rather than a Trust that is created at your death under the terms of your will. Typically, Living Trusts are revocable and amendable. You can be both the Trustee and the Beneficiary of your own Living Trust, keeping full control over your assets while still enjoying the complete benefit of all property held in the Living Trust.

  The two primary purposes of a Living Trust are to avoid the expense and time of Probate and to protect your privacy. Probate is the court-supervised process of paying a deceased person’s debts and then distributing that person’s property to the people who inherit it.

How Does a Living Trust Avoid Probate?

  Because a Living Trust is a contract between the Grantor of the Trust and the Trustee, property you transfer into a Living Trust before your death does not go through Probate. The average Probate drags on for months before the inheritors receive anything. And by that time, there is less for them to receive. In many cases more than 5% of the property has been consumed by attorney and court fees and other Probate costs.

  If you have a Living Trust at the time of your death the Successor Trustee -- the person you appoint to handle the Trust after your death -- simply transfers ownership of the Trust assets to the Beneficiaries you named in the Trust. In many cases the entire process takes only a few weeks, and there are no attorney or court fees to pay. In other cases you may want to direct the Successor Trustee to distribute your property or money to certain Beneficiaries a portion at a time and only upon certain events. For example, you could direct the Successor Trustee to distribute one-third of a Beneficiary’s share upon the Beneficiary turning 20 years old, one-third upon the Beneficiary turning 25 years old and the remainder upon the Beneficiary turning 30 years old. When all of the property has been transferred to the Beneficiaries, the Living Trust ceases to exist.

How Does a Living Trust Protect My Privacy?

  A Will becomes a matter of public record when it is submitted to a probate court, as do of all the other documents associated with the Probate, including inventories of the deceased person's assets and debts and a list of which persons received what assets. The terms of a Living Trust, however, will typically not be made public because the probate court is not involved. Typically the only time the terms of a Living Trust will be made public is if it is challenged by a beneficiary or a creditor, which rarely occurs.

Is It a Hassle to Own Property In a Trust?

  Making a Living Trust work for you does require some crucial paperwork. First, there is the Trust Agreement which identifies the Trustee, Successor Trustees, your Beneficiaries and contains instructions to the Successor Trustee regarding to whom and at what time you want the Beneficiaries to receive the Trust assets. Second, your property must be properly transferred into the Trust for the Successor Trustee to be able to distribute the property to your Beneficiaries and therefore transfer documents are necessary. For example, if you want to leave your house through the Trust, you must sign a new deed showing that you now own the house as Trustee of your Living Trust. It is important to transfer all property you want to pass to your Beneficiaries through your Living Trust into the Trust.

  Once an asset has been transferred to your Living Trust, you simply need to remember two words: “Trust” and “Trustee”. Any new asset with a title (such as an automobile) or a deed (in the case of real estate) should be purchased in the name of your Living Trust. Whenever you transfer a Trust asset, you must add the word “Trustee” after your name.

Does a Living Trust Protect Property From Creditors?

  Holding assets in a revocable trust does not shelter them from creditors. A creditor who wins a lawsuit against you can go after your Living Trust property just as if you still owned it in your own name.

  After your death, however, property in a Living Trust can be quickly and quietly distributed to the Beneficiaries (unlike property that must go through Probate). By the time creditors find out about your death, your property may already be dispersed, and the creditors may not know exactly what you owned (except for real estate, which is always a matter of public record). It may not be worth the creditor's time and effort to try to track down the property and demand that the new owners use it to pay your debts.

  On the other hand, Probate can offer a limited kind of protection from creditors. During Probate, known creditors must be notified of the death and given a chance to file claims. If creditors miss the deadline to file, they will not be able to collect on the debts.

If I Make a Living Trust, Do I Still Need a Will?

  Yes, you need a special type of will called a Pourover Will. A Pourover Will is an essential back-up device for property that you do not transfer to yourself as Trustee. For example, if you acquire property shortly before you die, you may not think to transfer ownership of it to your Living Trust -- which means that it won't pass under the terms of the Trust Agreement. However, in your Pourover Will you can include a clause that names someone to get any property that you have not left to a particular person or entity or you can direct that all property subject to the Pourover Will be given to your Successor Trustee to be distributed according to your Living Trust provisions.

  If you have a Living Trust, but do not have a Pourover Will, any property that is not transferred through your Living Trust or other probate-avoidance device will be distributed in an order determined by state laws called Intestacy laws. These Intestacy laws may not distribute property in the way you would have chosen.

Can a Living Trust Reduce Estate Taxes?

  A simple revocable, amendable Living Trust has no effect on taxes. More complicated Living Trusts, however, can greatly reduce the federal estate tax bill for people who own valuable assets.

  One tax-saving Living Trust is designed primarily for married couples with children. It is commonly called an AB Trust, although it goes by many other names, including "Credit Shelter Trust," "Exemption Trust," "Marital Life Estate Trust," and "Marital Bypass Trust." Each spouse leaves property in trust to the other for life, and then to the children. This type of Trust can save up to hundreds of thousands of dollars in estate taxes.

How Can a Living Trust Help if I Become Disabled or Incompetent?

  You would set up a revocable Living Trust, fund it adequately (or give someone in whom you have confidence power of attorney to fund it in the event of your incapacity), and name one or more reliable Successor Trustees to manage the Trust assets should you become incompetent or disabled. It is possible in a Living Trust to identify a procedure to be used to determine your competency should the issue arise. This procedure would allow you to identify which doctors you want to examine you to determine whether you are competent in the future.

  If a person who will be a Beneficiary of the Trust after you have passed away seeks to have you declared incompetent for an improper reason, your doctors will be the ones to examine you and determine your competency. If you are competent, then you have the ability to amend your Living Trust to remove that Beneficiary if you so choose. If your doctors determine that you are incompetent, then your Successor Trustee will be able to manage the Trust assets for your benefit until you pass away. This avoids the delay and red tape of expensive, court-ordered guardianship. At the same time, the Successor Trustee can take over any duties you had of providing for other family members.

Whom Should I Pick as Trustee?

  The biggest decision to make in designating a Successor Trustee is whether to use a family member, a professional trustee, or both. Many Trust creators choose a family member as a Successor Trustee. A family member usually will not charge a fee and generally has a personal stake in the Trust's success. If the family member is competent to handle the financial matters involved, has the time and interest to do so and if you are not afraid of family conflicts, naming a family member as Successor Trustee may be a good move, particularly for a small or medium sized estate.

  A Professional Trustee, such as a bank, will charge a management fee. Professional Trustees also have been criticized for being impersonal in their dealings with Beneficiaries who require, or at least desire, more personal attention. On the other hand, a professional Trustee is immortal, unlikely to take sides in family conflicts, and commands the kind of investment and money-management expertise that a lay Trustee may not possess.

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