What is a Living Trust: Estate Planning 101
- February 25, 2015
- No comments
What is a living trust from a historical perspective is interesting. The use of a family trust fund for estate planning purposes dates back to the days of the Roman Empire, the concept of equity, trustees and beneficiaries did not evolve until Medieval times. Back when Crusaders were sent off throughout Europe to gain territory and subjects on behalf of the King of England, legal issues often arose as to how to manage the property left behind by knights and other land owners that left for battle and how to distribute it in case of their unfortunate death during the fighting.
What is a Living Trust
To answer what is a living trust from a technical perspective, common law has greatly advanced the legal concepts of ownership, title, conveyance, and estate planning. To this effect, we understand a family trust these days as legal instruments that arise from equitable agreements. In essence, a family trust is a type of legally binding contract, whereby a grantor conveys ownership of property into a legal entity managed by trustee along with certain instructions.
Family Trust Fund
Under its most basic definition, a trust fund entails an individual giving something to someone else for holding and safekeeping until a certain event takes place. In this fashion, it is understood that the property is owned by the trust and not by an individual.
To answer what is a living trust from a logistic perspective, a living trust is a type of revocable family trust that is often used for estate planning purposes. The reason it is known as a living trust fund is that the grantor retains the right to revoke the family trust at any time during his or her lifetime, thus getting back individual ownership of the property. The grantor can appoint himself or herself as a beneficiary of the trust, thereby instructing the trustee to allow enjoyment of property and assets in the trust fund.
There are two principal advantages of a living trust: First of all, living trusts are ideal for estate planning since they can effectively do away with probate. Second, instructions left to the trustee before passing away can prevent heirs from burning through their inheritance. With a living trust in place, a grantor can write a very simple will for assets not yet placed in the trust fund that indicates the existence of a trust, thereby bypassing probate court and public disclosure of the estate and family life. Also, this type of revocable trust allows for special instructions such as making sure that surviving children first graduate from college before getting trust payments.
Creating a Living Trust
There are several ways to create a living trust. One way is to contact an attorney who will charge about $1500-5000 to help you draft and personalize a trust agreement, but with advanced technology today, it may be easier, faster, and cheaper to set one up with the same technology that most attorneys actually use themselves. Here is an example of one company that creates a personalized Living Trust in less time, more current on current laws, and for one tenth the cost.
It is important to note that the concept of individual ownership is not removed by living trusts. In the eyes of the court, property in a living trust belongs to the grantor, and thus taxes on trust assets must be paid even after passing away. Also, plaintiffs whose lawsuits prevail in civil court actions taken against grantors may be able to gain access to the assets held in trust for the purpose of settling claims. Only properly constructed irrevocable trusts such as the UltraTrust® can effectively avoid death taxes and protect assets from civil lawsuits.
If you need help strategizing a plan specific to you and your family’s needs, email us at firstname.lastname@example.org or call (888) 538-5872 for a free 30 minute consultation.
TELL US what you think about Living Trusts in the Comments Box below. What is the craziest estate planning family trust story that you have heard or experienced? Why?