What is a living trust?

A living trust is a legal document that replaces what you think of as your will. The living trust makes sure your assets go to the people you choose. It also avoids probate upon death or a conservatorship proceeding if you become incapacitated.

A living trust allows couples to eliminate or reduce taxes. In addition, setting up a trust gives you a complete picture of your assets and compels you to get your “financial house in order” to transfer the assets into the trust.

You should seriously consider a living trust if you either:

1. Own your own home or any other real property, or

2. Own over $150,000 in investments and other personal property.

You name yourself as trustee of your trust for your lifetime. You report to no one. You continue to control all your assets as before – to buy, sell, borrow against, give away, or do anything else you want to with your assets. In addition, you may change the trust any time.

A living trust enables your heirs to avoid probate if you set it up correctly and make sure most of your assets are listed in the trust.

For a married couple, holding their assets as joint tenants together avoids probate upon the death of the first of them. However, joint tenancy may have a high income tax cost to the surviving spouse. Furthermore, a major problem may arise when the second spouse dies, or if both spouses die together – a probate will be required at that point.

In addition, many problems are caused by owning property in joint tenancy with a child. For example, your child’s creditors might try to seize your property. Furthermore, at your death your property could end up going to only one of your children at the expense of your other children or grandchildren. A living trust can avoid all these problems.

The living trust is especially necessary when a husband and wife have children from prior marriages. Without proper estate planning, it is likely that the children of one of the spouses will end up with all of the couple’s property and the children of the other spouse will get nothing. A properly drawn living trust assures that the surviving spouse will be cared for, but then also assures that both sets of children will receive their rightful inheritance. A living trust is the only way to accomplish such goals and still avoid probate.

Tax benefits of a living trust 

A living trust may allow a couple to effectively double the basic estate tax exemption ($5,450,000 in 2016 under present law, doubled to $10,900,000). This saves over $2,100,000 in death taxes. If you have a typical will which leaves everything to your surviving spouse, your children may have to pay up to over $2,100,000 in taxes that could have been avoided. 

Cost of a Living Trust

A living trust does not cause any ongoing costs of management or administration. There are no additional attorney’s fees once the trust has been set up, unless later you want to amend the terms of the trust. You do not need to let us know or change any special trust list if you buy or sell trust assets in the future. In addition, please note that transferring assets to your living trust does not change your property taxes or how you file your income taxes.