Living Trusts
A living trust is a contract. Under this contract you can pass property to your heirs without probate. Also, a living trust can provide a means for you to be cared for if you become incapacitated or disabled. Generally you appoint yourself as the first trustee who manages the living trust. Then you appoint successor trustees to take over managing the trust assets when you die or are incapacitated. Living trusts are complex contracts that are designed to cover many issues and problems over the course of your entire lifetime. Therefore an attorney whose practice focuses on estate planning should be hired when creating a living trust. Living trusts can also be used to minimize estate tax for married couples.
Wills
A will is a document in which you specify who you want to receive your property after your death. The will also appoints an executor to handle the probate process. A will must be taken to court and probated unless the estate is very small.
Living Trusts vs. Wills
A will must be probated. By contrast, a properly funded living trust avoids probate. In order to function as intended, all assets must be titled in the name of the living trust at death. A living trust can also provide a means to pay for your care if you are disabled (without going to court). A will allows you to designate the person you want to be in charge if you are disabled. However, the person designated in a will must go through an expensive court proceeding, called a guardianship or conservatorship, to access your assets to pay for your care.
Types of Trusts
The term, "living trust," means it is established while you are alive. By contrast, a testamentary trust is established after your death (usually by means of a will). Living trusts can either be revocable ( the normal type) or irrevocable.
Revocable living trusts are the type of trusts most people use. Revocable living trusts can be amended or revoked if circumstances change in the future. By contrast, an irrevocable trust can not be amended or revoked by you. Irrevocable trusts are generally used by higher wealth clients to buy large insurance policies or who have sufficient assets for their support and well being outside the irrevocable trust.
Living trusts can be adopted by one person, married couples or multiple unmarried persons. Married couples can adopt certain types of living trusts to help them avoid or minimize estate taxes. Examples of these type trust are disclaimer trusts, by-pass trusts (sometimes called A/B trusts), and Q-Tip trusts.
Irrevocable Life Insurance Trusts (ILITs)
An irrevocable life insurance trust is used for those who want to buy large life insurance policies without the proceeds being s ubject to estate tax when they die. This can provide a source of funds to pay the estate tax on the rest of the purchaser's estate.
Special Needs Trusts
A special needs trust is a trust that is established to help a disabled person who is likely to be receiving governmental aide based upon income. If you left assets outright to such a person, you would disqualify them for the health coverage associated with the governmental aide program. A special needs trust leaves the money to a third party trustee, who will use the funds to help the disabled person in a manner than does not disqualify them for the governmental aide program.
Living Trust vs. Living Trust Package
A qualified estate planning attorney rarely recommends a living trust be adopted alone. A qualified estate planning attorney recommends the client adopt a living trust package. This living trust package contains the following:
- A revocable living trust;
- Deeds and grants of assets that will fund the trust
- Wills to put assets into the trust (pour-over wills)
- Durable power of attorney for asset management;
- Durable power of attorney for health care, living will or advance health care directive.
Living trust packages can also contain additional documents such as a community property agreement, burial and/or cremation instructions and a certification of trust.
 |
