A living trust is sometimes referred to as a revocable trust, inter vivos trust, or family trust. A living trust is an arrangement under which one person, called a trustee, holds legal title to property for another person, called a beneficiary.
The grantor (the one setting the trust up) can also be the trustee and beneficiary of his or her own living trust, keeping full control over all property held in trust. The living trust is used to avoid probate and guardianship, as well as to assist with estate tax planning.
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Basically, probate is the court-supervised process of paying estate debts and distributing estate property to the people who are to inherit.
Property transferred into a living trust before death doesn’t need to go through probate.
The process of administering a living trust at death may take only a few weeks, and there are no court fees to pay. Probate can take months, if not years, and court costs can be very high.
Living trusts are simple to setup and do not complicate property ownership. For income tax purposes, a living trust is classified as a “grantor trust,” meaning that the grantor (the one who sets the trust up) will continue to be responsible for paying the taxes associated with trust income.
In other words, when someone sets up a living trust, he or she continues to pay all associated income taxes and the trust does not effect in any way the grantor’s tax filing status.
There is no requirement to record or publish a revocable living trust, so personal information can remain private. In probate, personal information is generally made public, since probate is a public proceeding.
Living revocable trusts provide little asset protection to the grantor (the one setting up the trust), but can offer significant asset protection benefits to surviving spouses, children or other named beneficiaries.
One of the greatest benefits of a living trust might be that it protects family assets from divorce, failed marriages, bankruptcy, drug addiction, and other creditor problems. Without a living trust, a simple will would generally leave property outright to heirs, thereby subjecting such property to seizure and attachment by any creditors.
Moreover, a trust can protect assets from spendthrift individuals who might otherwise “blow” the inheritance and waste hard earned assets through frivolous spending and/or unwise investment.
Using a trust to dispose of an estate can also help take advantage of favorable estate and generation skipping transfer tax benefits.
Living trusts are regularly designed so as to make good use of both spouses’ estate tax exemption amounts (currently $5,000,000, plus a cost of living increase amount).
Without a living trust, the surviving spouse may not take the necessary steps to preserve the estate tax exemption of his or her deceased spouse. This could cost the estate huge amounts in needless tax payments.
All in all, the living trust is a straight-forward solution to achieving goals associated with asset protection, estate tax planning, probate avoidance, and testamentary decisions.
The revocable trust is simple to use and can facilitate the cost-effective and well-designed transfer of assets from one generation to another. Folks work hard for their money; they should not let a lifetime of effort be wasted through mismanagement of the estate at death. The living trust can go a long way to protecting and preserving one’s estate.