More Information About Living Trusts

The Revocable Living Trust

A living trust is a legal document among three parties: (1) the settlor (the person who creates the trust); (2) the trustee (the person who manages and controls the property transferred to the trust by the settlor); and (3) the beneficiary (the person who receives the benefit of the trust). In a typical estate plan, the settlor, trustee and beneficiary may all be the same person.

A living trust usually is revocable, which means that the settlor may amend, change or terminate the living trust at any time. Therefore, the settlor has full control of the trust and its assets. When the settlor dies, the trust usually becomes irrevocable so that no one can change the settlor's plan for distributing the assets after the death of the settlor.

Advantages Of A Living Trust

There are three principal advantages to a living trust. The most important advantage is that a properly funded living trust will avoid probate at the death of the settlor. This usually will save considerable costs and hassle for the beneficiaries.

For example, on an estate worth $600,000, the statutory executor fee is $15,000. The attorney for the executor receives the same statutory fee, and the fees are calculated on the fair market value of the property, without deducting any liens or encumbrances. So, the cost of probating a $600,000 estate where the executor and the attorney receive statutory fees would be $30,000.

All of these fees are avoided with a living trust. Although there are some fees involved in administering a living trust after the death of the settlor, they are usually considerably less than the statutory probate fees.

The second advantage to a living trust is that if the settlor becomes unable to manage his affairs, a court-appointed conservator of the settlor's assets would not be necessary. The successor trustee named in the living trust would take over and manage the settlor's assets and pay the settlor's bills.

The third advantage to a living trust is one of privacy. With a living trust, there is no one, single document listing all of the decedent's assets and their value at the date of death, which is a matter of public record in a probate estate. Also, there is no single public record of how or who receives those assets after the decedent's death.

Tax Savings With A Living Trust

Tax savings may be realized with a living trust. With the proper use of tax-savings trusts established in a living trust, in 2013 a husband and wife can transfer up to $10.5 million to their children, or other beneficiaries, without incurring any federal estate tax (the personal exemption is $5.25 million). This amounts to a tax savings of approximately $2.1 million ($5.25 million x 40 percent).

Delay Children From Receiving Inheritance Until They Reach A Mature Age

With a living trust, you can also delay your children from receiving all of their inheritance until they are mature enough to handle the assets while still providing for their care and education. (The tax savings and provisions for children can also be accomplished with a will, but probate would be required with a will.)

Need For A Will

A will is still needed if you have a living trust, to ensure that any assets that are not transferred to the living trust will still be distributed according to the provisions of the living trust. Thus, the will serves as a back-up to the living trust.

Funding The Living Trust

To ensure that probate will be avoided with a living trust, assets must be transferred to the living trust. This is accomplished by transferring title to the assets to the trustee. For example, John Doe would transfer his assets to John Doe, Trustee of The John Doe Trust. John Doe, as Settlor, still has full control and management of the assets, but the assets inside the living trust will not have to be probated at his death.

Summary

The living trust has become a popular and important estate planning tool. Since probate can be avoided with a living trust, thereby saving heirs considerable expense and probate court procedures, it is a valuable device to be considered in small and medium-size estates as well as large estates.

Contact Us For A Free Consultation

We hope you find the above information helpful in your estate planning. Please do not hesitate to call our San Jose office at 408-780-3580 or send us an email if you have any questions.