Living Trusts: The Solution To Several Challenges

How can you make someone else legally responsible for managing your assets, and providing you income, while you're living? How do you efficiently transfer assets to your family at death? How do you do so without the transfer becoming public knowledge? And how can you ensure that the transferred assets will be professionally managed after your death? For many individuals, the answer is a living trust.

Unlike a will, which becomes a matter of public record after your death, a living trust allows your asset transfers to remain completely private. What's more, you can use the trust to ensure that the assets are and will continue to be professionally managed—yet without losing control of them while you're still alive.

Maintaining Control

As the name indicates, a living trust takes effect during the grantor's (trust creator's) lifetime, unlike trusts established under a will (testamentary trusts) that take effect upon the grantor's death. When you set up a living trust, its trustee takes legal responsibility for any assets you place in the trust. The trustee has an obligation under law to follow the instructions you provide in the trust document. You can retain overall control because, if you so provide in the trust agreement, you can end or amend the trust at any time (a revocable living trust).

Generally, you make yourself—or yourself and your spouse—the trust's primary beneficiaries and your children or other heirs the secondary beneficiaries. As a beneficiary, you receive periodic income.

Private, Undelayed Transfer

After your death, the trustee of a living trust will distribute the trust assets to the secondary beneficiaries—privately and without delay. Unlike the process involved with a will, the living trust involves no probate court—with its costs, time, and possible undesirable publicity. However, you still need a will to transfer any personal effects or other possessions that, for any reason, you do not place in the trust.

Because the trustee takes over day-to-day management responsibility for the trust's assets, it is essential to choose an experienced professional investment manager as trustee.

In Case of Disability

If you should ever become mentally or physically disabled—temporarily or permanently—the trustee can step in quickly to handle all your financial and household affairs, if properly authorized. Alternatively, you could use a durable power of attorney to empower someone to act for you, but this may not cover all contingencies, and it is more easily challenged than a living trust. Without the trust (or other arrangement), a court-appointed guardian would be necessary. The court's guardian may be someone you would not have chosen, and the process can be complicated and costly.

When Minors Inherit

A cumbersome court-appointed guardianship may also be required if you use a will to leave assets to your minor children. The guardianship usually ends at age 18, placing a young adult in full control of what may be a very large sum of money. If this is your concern, you can use the living trust to protect the assets by having the trust continue in effect after your death and specifying when and how your children beyond age 18 will receive distributions.

No Tax Impact

Because a grantor can generally terminate a revocable living trust at any time, for any reason, the amount of your taxable estate is not affected. So, you cannot view a revocable living trust as a tax strategy. On the other hand, an irrevocable living trust—one you cannot change or revoke—may serve as an effective estate-tax saving device. Set up properly, an irrevocable living trust can make lifetime gifts to others and thereby reduce the size of your taxable estate. The value of the assets gifted, plus any future appreciation, will be exempted from your gross estate for estate-tax purposes.

Do you want to know more about a living trust? Please call us; we would be happy to explore the planning possibilities with you.

Disclosures:

  • Consult a tax advisor for advice.
  • To send an email that contains confidential information, please visit the Secure Message Center where there are additional instructions about whether to use Secure Email or Online Banking messaging.
  • Mutual funds, annuities, and other investment products:
    Not FDIC-insured May lose value No bank guarantee