A Living Trust is a trust that you establish during your lifetime.
It is also known by such names as a Revocable Trust,
an Inter Vivos Trust, and a "Loving" Trust.
A Living Trust offers two major advantages:
- Avoidance of guardianship in the event of
- Avoidance of probate on death
You serve as the initial Trustee of the Trust and
have full management control of the trust assets during your lifetime just
as though you owned them individually.
During your lifetime, the trust assets are
considered as owned by you for income tax purposes, and no trust income
tax return is required.
In the event of your incapacity, the person
or persons that you appoint would take over management of the Trust assets
as successor Trustee(s), thereby avoiding the need to appoint a guardian
with respect to such assets.
Upon your death, the assets held in the Trust will
be distributed by the successor Trustee(s)
to your beneficiaries or held in trust for them as you
direct without being subject to the probate process.
It is important to remember that to avoid probate, assets
must be titled to the Living Trust during your lifetime. Any
assets that you have not titled into the Trust and do not otherwise pass
outside of probate will be distributed according to your Will and will be
subject to probate.
Sadly, we too often see cases where people have
invested a lot of money in a Living Trust, but failed to title their
assets in the Trust during their lifetime. To prevent this, we
give all of our clients detailed instructions on titling assets into their
Trusts and will assist in retitling assets on request.
You will see many ads in newspapers for Living Trust
seminars that seem to say that you can do estate tax planning in a Living
Trust that you cannot do in your Will. That is simply not true.
You can avoid estate taxes just as well with a Will as with a Living
Trust. What matters is whether the proper estate tax savings
provisions are in the Will or Trust. Of course, most people with
enough assets to be concerned about estate taxes will also save
substantial money by avoiding probate, so the two often go hand-in-hand.
In addition, many of these seminars seem to indicate
that a Living Trust is the only way to avoid probate. This is also
not true. There are many other mechanisms available to avoid
probate, including joint tenancy, beneficiary designations and transfers
with retained life estates. Each of them has its own benefits and
Any property that you own as joint tenants with
right of survivorship with anyone, or a tenants by the entireties with
your spouse, will pass outright to the surviving co-owner on your death
without going through probate. However, there are many possible
problems with non-spousal joint tenancies. If you make a child a co-owner and
later desire to sell the property, then you will need the child's consent
to do so. In addition, if the child has creditor problems, then the
creditor may have the ability to place a lien on and foreclose upon the
child's interest in the property. Not a happy result!
Property that you co-own as tenants in common
will be subject to probate upon your death.
Beneficiary designations have traditionally been
available with life insurance, IRA's and pension plans and bank accounts.
In 1994, Florida adopted the Uniform Transfer on Death Securities
Registration Act, which permits beneficiary designations on stock and bond
certificates and brokerage accounts. You simply name the person or
persons you want to receive the property on a beneficiary designation
form, and upon your death, the property or insurance proceeds pass
outright to the beneficiaries named. So long as you don't name your estate
as beneficiary (a common mistake), probate is avoided. Because
beneficiary designations can generally be changed without the
beneficiary's consent, the beneficiary has no rights to the property
during your lifetime,
so this method is preferable to a joint tenancy.
Unfortunately, beneficiary designations are not very flexible, in that you
are generally limited to naming specific individuals as beneficiaries, for
example, 50% to Child A and 50% to Child B. If Child B
predeceases you, then many beneficiary designation forms provide that 100%
would pass to Child A, even if Child B has children of his or her own.
While other probate techniques are available, a
Living Trust is the only probate avoidance device available
that permits sophisticated tax planning, flexibility as to
disposition, and avoids guardianship, as can be seen from the following
|Avoids guardianship on incapacity
*Guardianship may also be avoided with a properly
drafted Durable Power of Attorney.