Law Offices of Robert J. Ross

 

Estate Planning Memo « »

Living Trust

You retain the ability to spend, save and manage your assets in your living trust as you see fit while you are competent and you are not required to file additional income tax returns or reports. Most persons act as trustee of their own living trust and name a spouse, child, relative and/or trusted friend to act (one at a time) as successor trustee (when you, as grantor, are unable to act as trustee). A bank or trust company is typically named as final successor trustee in the event the named individuals do not act. Living trusts direct your chosen successor trustee to manage assets for you during a time when you are disabled and upon your death without the time, expense and exposure of probate. Importantly, you can change or revoke your living trust any time while you are competent.
In your living trust, you declare that property which you re-title into your name as trustee of your living trust is held subject to the terms of the trust. If you become mentally disabled, your successor trustee is empowered to use assets in your living trust to support you and your loved ones who you have selected in advance. Upon your death, the successor trustee follows your direction to distribute or hold the assets for one or more of your beneficiaries. Assets which you leave in trust for your children can be protected from many of their own creditors.
Assets in your living trust (and other assets over which you have control) are included in your gross estate for estate tax purposes. These assets are also typically counted when determining Medicaid eligibility. Living trusts do not shield your assets from your own creditors.

You retain the ability to spend, save and manage your assets in your living trust as you see fit while you are competent and you are not required to file additional income tax returns or reports. Most persons act as trustee of their own living trust and name a spouse, child, relative and/or trusted friend to act (one at a time) as successor trustee (when you, as grantor, are unable to act as trustee). A bank or trust company is typically named as final successor trustee in the event the named individuals do not act. Living trusts direct your chosen successor trustee to manage assets for you during a time when you are disabled and upon your death without the time, expense and exposure of probate. Importantly, you can change or revoke your living trust any time while you are competent.
In your living trust, you declare that property which you re-title into your name as trustee of your living trust is held subject to the terms of the trust. If you become mentally disabled, your successor trustee is empowered to use assets in your living trust to support you and your loved ones who you have selected in advance. Upon your death, the successor trustee follows your direction to distribute or hold the assets for one or more of your beneficiaries. Assets which you leave in trust for your children can be protected from many of their own creditors.
Assets in your living trust (and other assets over which you have control) are included in your gross estate for estate tax purposes. These assets are also typically counted when determining Medicaid eligibility. Living trusts do not shield your assets from your own creditors.

Distribution of Assets at Death

One or more additional trusts are typically created under your living trust. They are designed to spring into existence upon your death. In this way you direct how, when and to whom trust property will be distributed. You can include trusts for your spouse, trusts for children, special needs trusts for disabled beneficiaries, spendthrift trusts, trusts to protect beneficiaries from creditors and other provisions. Your trustee will hold property in a manner designed to minimize estate taxes and limit interference by subsequent spouses, creditors and others. The successor trustee can be directed to hold money for minors until they reach certain ages, staggering principal distributions over a period of several years while still providing for the beneficiary’s needs. Assets can also be held for future generations. Living trusts are administered privately and do not subject your personal and financial matters to public probate proceedings.

Irrevocable Insurance Trusts (“ILITs”)

For larger estates, persons sometimes create ILITs (in addition to living trusts) to minimize estate and gift taxes. As with other gifts, you surrender power and forego benefit from the ILIT’s income and principal. Unlike living trusts, ILITs cannot be amended and do require steps to be taken each year. ILITs are used in advanced estate planning and are not discussed in detail in this basic Memo.

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