Living Trust Guide

What is a Living Trust?

A living Trust is designed to pass your assets to your loved ones as you planned as well as eliminate the delay and cost of probate of assets placed in the living trust during your lifetime. A living trust is created with a document known as a Declaration of Trust or Trust Agreement. This legal document contains articles which name who you want to leave your property to and how, as well as name those you trust to carry out your wishes.

A Living Trust can also be called by its common name, a “revocable living trust.” It is called “revocable” because you can change your trust anytime during your lifetime and even revoke the entire trust during your lifetime if you choose and take the assets back.

It is described as “living” because the trust is created while you are alive. The trust survives you at death and will distribute your assets per your instructions.

It is a “trust” because it creates an entity into which assets can be placed for normal use during your lifetime and then be available for distribution to anyone you select after your death.

Benefits of a Living Trust

There are many benefits to having a living trust. Some of these are advantages that can benefit everyone, while other benefits of a living trust are for estates in a certain financial category.

The following are a list of benefits of a living trust that affect anyone and everyone who has one:

  • A trust allows for the quick and easy transfer of property to your loved ones
  •  A trust can provide uninterrupted management of the estate should you and your spouse become incapacitated
  • A trust can provide an organizational section for record keeping and to collect information about your personal and financial affairs
  •  A trust can avoid the probate process, thus avoiding the time and expense that usually occurs with court proceedings
  • A trust may help you avoid or reduce certain estate taxes
  • A trust is a private document (as probate is a matter of public record)
  • A trust is valid in every state
  • A trust can be revoked or amended at any time during your lifetime
How does a Living Trust work?

Simply put, you create your living trust, you then transfer ownership of your assets to the trust which you manage as the trustee and then those assets pass to your designated beneficiaries upon your death. If you become incapacitated or no longer want to manage your trust assets, your named subsequent trustee can take over the management of the assets for your benefit and then distribute them in accordance with your wishes upon your death.

Probate avoidance is one of the most significant benefits of a Living Trust. To avoid probate, a person or a married couple can place assets in “trust” while keeping full control over their property.

The trust has actual ownership of the property, although you own the trust throughout your lifetime. All property transferred into the living trust will be left out of the probate process. Any property that you neglect to put into the trust may be subject to probate.

Without a living trust or other legal documentation in place, a court would have to appoint a conservator (or guardian) for you to make decisions on your behalf. Most people would prefer to name someone they choose, know, and trust rather than to leave it up to the courts to decide. Additionally, a petition for conservatorship (or guardianship of an adult) takes time and money which can be avoided with the living trust.

What is probate?

Probate is the court supervised distribution of your assets if you don’t have a living trust and can be a long, expensive process that simply does not have to occur. The expense of this process as compared to the expense of administering a living trust should be calculated to decide whether, in your case, creation of a living trust is a better solution.

Death is a difficult time for everyone concerned, and you may want to protect your family from having to go to probate court, if there is a better solution in your case.

The probate process usually involves...

  • Filing a deceased person’s will with the local probate court
  • Taking an inventory/getting appraisals
  • Publishing notices
  • Paying all legal debts
  • Distributing the remaining assets and property to the rightful heirs

Probate may require an “executor” and an “attorney.” Sometimes the executor is referred to as the “personal representative.” The executor is responsible for making sure the Last Will and Testament is followed. The executor often hires an attorney to handle the necessary paperwork.

Executors and attorneys are allowed to charge “reasonable fees” for their services. Executors who are family members frequently waive their own fees where the estate is small, but they are not obliged to do so. Some additional fees beyond those paid to the attorney and executor include court costs, filing fees, etc. These fees are paid out before any proceeds are distributed to the decedent’s family.

What type of trusts does Legal Express offer?

Single Trust 

  1. Assets are held in trust during the settlor’s life and then distributed to beneficiaries after the settlor’s death.
  2. Used by a single or married individual.
  3. Main purpose is to avoid probate of the assets transferred to the trust.
  4. Contains no estate tax saving provisions, so generally appropriate for a single person, or a couple with an estate less than $2 million.

Joint A Trust (with optional B trust) [aka Disclaimer Trust]

  1. Assets are held in trust during the settlors’ joint lives. After one settlor dies, assets remain in trust for the suriving settlor, with the surviving settlor having full control over the assets and an option to create a B trust (with limited control) for tax purposes. Assets are distributed to the beneficiaries after the surviving settlor dies.
  2. Used by a married couple.
  3. Main purpose is to avoid probate of the assets transferred to the trust.
  4. Second main purpose is to give maximum flexibility to surviving spouse. If necessary, the surviving spouse may elect to create an irrevocable estate tax-saving trust (B trust). Generally, this trust is appropriate for married couples with a combined estate up to $4 million.
  5. The main disadvantage of this trust is the surviving settlor inherits all the assets after the first death and the deceased settlor loses control over his or her share of the estate after his or her death. Of course, if the surviving spouse elects to create the irrevocable estate tax-saving trust, then the disadvantages associated with the A/B trust would also apply here, with the big difference that the surviving spouse makes the choice. The surviving spouse has 9 months in which to create the irrevocable B Trust by signing a qualified disclaimer and the surviving spouse must not have accepted the interest or any of its benefits prior to the disclaimer. The surviving spouse should consult with his or her qualified tax professional to determine whether to activate the irrevocable B Trust.

Joint A/B Trust

  1. Assets are held in trust during the settlors’ joint lives. After one settlor dies, assets are divided into an A trust, with the surviving settlor having full control over those assets, and a B trust, with the surviving settlor having limited control. Assets are distributed to the beneficiaries after the surviving settlor dies.
  2. Used by a married couple.
  3. One main purpose is to avoid probate of the assets transferred to the trust.
  4. Second main purpose is to minimize estate taxes, so generally appropriate for married couples with a combined estate greater than $2 million and less than $4 million.
  5. Deceased settlor’s property is transferred to an irrevocable trust at the first death, which carries with it disadvantages including:
  6. Annual tax returns must be filed for the irrevocable trust.
  7. Surviving settlor has limited access to the deceased settlor’s property.

Joint A/B/C Trust

  1. The characteristics of an A/B/C trust are the same as the A/B trust except that on the first death, any of the deceased settlor’s property above $2 million is passed to a C trust (also called a QTIP trust) to postpone payment of estate taxes on property in excess of $2 million. Generally appropriate for married couples with a combined estate greater than $4 million.
Our Living Trust Package includes

1. DECLARATION OF TRUST or THE TRUST AGREEMENT is the written document that sets forth the terms and conditions of the trust. This document is tailored to meet the unique needs of your family and circumstances.

It will include provisions such as:

  • Names of trustees
  • Names of your family members
  • Names of beneficiaries and terms of distribution
  • Name of a custodian for any minor beneficiary
  • Names of who will serve and in what order as successor trustee

2. THE POUR OVER WILL transfers any remaining assets or property not previously transferred into the trust. The function of the pour over will is to act as a safety net to catch any property that has been intentionally or inadvertently left out of your trust at the time of your death. This document allows those assets to “pour over” into the trust so they may be distributed according to the terms of the trust. This is also the important document that will state your choices for a guardian if you have minor children.

3. An ORGANIZATIONAL SECTION for record keeping and to collect information about your personal and financial affairs is included. Forms are provided which can be completed regarding where assets are located, wishes for memorial services, and any other information which you consider to be pertinent. The organization will be instrumental in assisting loved ones settle your estate, as well as beneficial to your power of attorney agents or representatives in the event that you are disabled or incapacitated. It also allows for easy tracking of your assets to benefit you while funding your estate, managing your estate and furthermore, getting and staying organized can speed estate distribution.

4. A POWER OF ATTORNEY FOR FINANCES AND PROPERTY MATTERS allows you to delegate broad authority over your personal financial affairs. A power of attorney for finances and property matters gives you peace of mind to know the person you designate will manage your affairs should you be unable or unavailable as well as during periods of incapacity. You may choose a power of attorney that is effective immediately and continues to be in effect even if you become incapacitated or incompetent; or you can choose a springing power of attorney, which doesn’t become effective until you become incapacitated or incompetent.   Legal Express will not be able assist Minnesota residents in preparing a springing power of attorney.

 (Please note: With a springing power of attorney, a physician generally must certify the incapacity of the principal before the power of attorney “springs” into effect, but the physician may be reluctant to make such a certification because of the Health Insurance Portability and Accountability Act.)

5. THE DURABLE POWER OF ATTORNEY FOR HEALTH CARE allows you to appoint a person to make important decisions about your medical care, including your right to withhold certain medical treatments in certain circumstances.

6. THE LIVING WILL can be part of the durable power of attorney for health care or a separate document in some states. It is an optional document that formally expresses your end of life decisions and your wishes to forgo extraordinary medical treatment if you become terminally ill.

Parties of a Living Trust

Settlor/Grantor - The person who creates the trust.

Trustee - The person who will manage the trust. The grantor and the trustee are generally the same person.

Successor Trustee - The person(s) with whom the settlor places the responsibility for managing and distributing the assets placed in the living trust after the settlor’s death. If you pass away your successor trustee gathers your assets, pays valid debts, claims and taxes, and then distributes your assets as you have directed in your living trust without your assets being subject to probate.

Also, if you become incapacitated, your successor trustee can take over the management of the assets in the trust for your benefit without any further legal proceedings.

Beneficiaries - The person(s) named by the settlor to receive the assets after death. The settlor will designate in the living trust how the estate should be divided and when the beneficiaries would be entitled to receive the distributions. When the settlor dies, the successor trustee is responsible to distribute the assets according to the wishes of the settlor, as set out in the trust.

n the example below, Bob Smith established a living trust. Because he created and properly funded a living trust during his lifetime, he will pay no probate fees and the assets he transferred into his living trust during his lifetime will not go through probate.

During Bob's Life   After Bob Dies
Settlor Bob Smith None
Trustee Bob Smith Jane Smith (Successor Trustee)
Beneficiary Bob Smith Jane Smith (Bob's Wife)

During his lifetime, Bob Smith is the only person who benefits from the trust. At Bob’s death, the designated successor trustee Bob’s wife Jane Smith takes over and distributes Bob’s assets according to his wishes. Bob also designated Jane to receive his assets after his death.

Funding Your Living Trust

Once your trust has been signed, a very important task remains to be accomplished. In order to achieve your objectives of ensuring that your loved ones receive their inheritance as you planned as well as eliminating the delay and cost of probate, assets must be transferred to the trustee of the living trust. Your trust will remain “unfunded” until you transfer your assets into it.

People often place their real estate, financial accounts, proceeds for life insurance and annuity contracts, corporations, partnerships, businesses and any other significant assets into the trust. Not all assets need to go into a living trust. Life insurance allows you to directly name a beneficiary to whom the proceeds would be paid upon your death without processing through probate. IRAs and 401Ks cannot be placed in a trust.

Assets many choose not to include are small assets which may be able to pass to heirs without formal probate through the “pour over will.” The pour over will takes property left outside of the trust and places it into the trust after you pass away so that the property may be distributed in accordance with the trust. The value and type of assets which you may leave to be dealt with by a pour over will and still avoid probate vary from state to state.

As is often the case, it is a good idea to check with a Certified Public Accountant, or Attorney if you have questions on your transfer to obtain advice on which assets you should transfer to your living trust.

Examples of commonly transferred assets include, but not are limited to:

  • Real estate
  • Savings accounts
  • Sole proprietorships and other business interests
  • Other significant property or assets
  • Stocks and bonds held directly in a certificate; ownership interests in private or closely-held corporations
How Legal Express can help you fund your Living Trust Tangible Personal Property

Some items of property do not have a written title to transfer such as household furniture, goods, valuables and personal property. These types of assets can be collectively transferred to the Trust by means of a document called an assignment. An assignment gives all the rights that the owner has in the property to the Trust. Legal Express can handle the preparation of your Assignment at a reasonable cost.

Real Estate

Execution of a Quit Claim Deed can transfer title to your trust name for your real estate. Be sure to have your exact property description from the current deed. Legal Express can handle the preparation of your Quit Claim Deeds at a reasonable cost.

Mobile Homes

Preparation of a Mobile Home Transfer can change the title on your mobile home from your name to the name of the trust. Legal Express can prepare the transfer documents in most states, for a reasonable cost.

Businesses

Transfer of your business to your trust can be accomplished with an Assignment of Business Interest. Legal Express can prepare the Assignment of Business Interest at a reasonable cost.

Will my beneficiaries have to pay estate tax?

With the Taxpayer Relief Act of 1997  and the Tax Relief Act of 2001, the Estate Tax Credit has gradually been increasing. At the same time, the top tax rate will be decreasing until 2010, when estate and gift taxes are fully repealed. However, in 2011, estate taxes return to their 2002 levels.

Here's a breakdown of the Estate and Gift Tax Credits and top Unified Tax Rates:

Year

Max Estate Tax Credit

Max. Gift
Tax Credit

Max. Unified Rate

2007

$2 million

$1 million

45%

2008

$2 million

$1 million

45%

2009

$3.5 million

$1 million

45%

2010

Tax Repeal

Tax Repeal

0%

2011

$1 million

$1 million

50%

2012

$1 million

$1 million

50%

2013

$1 million

$1 million

50%

In 2007, every estate holder who dies can pass $2 million of their estate tax-free to heirs. Unfortunately, the remainder is subject to estate taxes.

Does a Living Trust provide any protection from Income Taxes or Litigation?

No, it does not provide any protection for your assets against lawsuit or tax attachment.

What age can my minor beneficiary(ies) receive their gifts?

The Uniform Transfers to Minors Act (UTMA) is a law that has been adopted in substantially the same form in almost every state. (The holdouts are South Carolina and Vermont.) Under the UTMA, you may choose someone to manage property you are leaving to a child. This person is called a custodian. If you die when the child is still under the age set by your state's law -- 21, in most states -- the custodian will step in to manage the property. (Older offspring get their property outright.). In most states, a UTMA custodianship ends when the beneficiary is 21. But a few states end them at 18, and a handful allow you to extend the age to 25.

See the chart on the next page to see what age your state allows:

State

Age Minor

State

Age Minor

State

Age Minor

State

Age Minor

 

Receives

 

Receives

 

Receives

 

Receives

 

Property

 

Property

 

Property

 

Property

Alabama

21

Idaho

21

Missouri

21

North

18-21

 

 

 

 

 

 

Carolina

 

Alaska

18-25

Illinois

21

Montana

21

Oregon

21

Arizona

21

Indiana

21

Nebraska

21

PA

21

Arkansas

18-21

Iowa

21

Nevada

18-25

Rhode

18

 

 

 

 

 

 

Island

 

California

18-25

Kansas

21

New Hampshire

21

South

18

 

 

 

 

 

 

Dakota

 

Colorado

21

Kentucky

18

New Jersey

18-21

Tennessee

21

Connecticut

21

Maine

18-21

New Mexico

21

Texas

21

Delaware

21

Maryland

21

New York

21

Utah

21

District of
Columbia

18

Massachuse tts

21

No. Carolina

18-21

Virginia

18-21

Florida

21

Michigan

18-21

No. Dakota

21

Washington

21

Georgia

21

Minnesota

21

Ohio

21

West

21

 

 

 

 

 

 

Virginia

 

Hawaii

21

Mississippi

21

Oklahoma

18

Wisconsin

21

Wyoming

21

 

 

 

 

 

 

To set up a custodianship, all you need to do is name a custodian and the property you're leaving to a young person. You can do this in your will or living trust, or when you name a beneficiary for an insurance policy, if you're leaving life insurance proceeds to your kids. For example, your will might state, "I leave $10,000 to Michael Stein, as custodian for Ashley Farben. That would be enough to create the custodianship (if it's ever needed).

May I amend or revoke my Living Trust from Legal Express?

f you are single and have a Legal Express Living Trust you can revoke or amend your living trust at any time during your lifetime. You may do this through Legal Express or an attorney, but please do not write on your trust document or alter them in any way as this may cause serious problems with the validity of your trust.

If you are married and have a Legal Express joint trust then you and your spouse must act together to amend the trust while you are both alive. In contrast, either spouse may revoke the trust while both spouses are alive. A revocation would simply cause the property in the trust to revert back to its original owners, that is why a married couple only requires one spouse to revoke, but two to amend. Again, you may do this through Legal Express or an attorney, but please do not write on your trust documents or alter them in any way as this may cause serious problems with the validity of your trust.

If you are a married couple and have a Legal Express joint trust, the surviving spouse’s right to amend or revoke all or part of the living trust after the first spouse dies varies depending on the type of trust you have. The survivor’s trust (which is automatically created after the first death in the joint A, AB and ABC trusts) is revocable and amendable by the surviving spouse. The decedent’s trust (which is automatically created after the first death in the joint AB and ABC trusts, and is optional in the joint A trust) is irrevocable and cannot be altered by the surviving spouse. The QTIP trust (which is created only in joint ABC trusts) is also irrevocable and cannot be altered by the surviving spouse.

Can I create a Joint Trust if my Spouse is Not a US Citizen?

Special tax rules apply when one of the spouses is not a U.S. citizen. Thus special precautions may be necessary to ensure that the Trust property will qualify for the federal estate tax marital deduction at death of the citizen spouse. Federal tax law currently requires that property given to a noncitizen spouse be in a trust having a U.S. citizen (or U.S. corporation) as a trustee in order for the property to qualify for the federal estate tax marital deduction. Basically, this requirement is so that the I.R.S. can collect, from either the trust or the trustee who is a citizen, the estate taxes due on the trust when your noncitizen spouse dies.  Legal Express Joint A/B and A/B/C Trust forms are not designed for a couple where at least one of the spouses is a non-US citizen. You will need to consult with an attorney. Legal Express can assist you with a Joint A Trust when one of the spouses is a non-US citizen if you independently determine that you are not concerned with any estate tax ramifications.

GLOSSARY OF ESTATE PLANNING TERMS

Administration of Estate: Supervision of a decedent’s estate by an executor/administrator and the court.

Administrator: One given the authority to settle the estate of the decedent. Also called an executor or personal representative. The person given the authority to settle your estate at your death. The term administratrix can also be used interchangeably. Both these words usually refer to court appointed people when there is no will specifically stating someone. 

Beneficiary: One entitled to profit, benefit or advantage from a contract or estate. A person who receives any assets from a will or a living trust is a beneficiary. An alternate beneficiary is someone who receives any assets as a result of the primary beneficiary’s death. 

Codicil: A written document or amendment of a Will. 

Conservator: A person appointed to act on behalf of another person.

Conservatorship: A formal proceeding in which the court appoints a person to act on behalf of another in business and/or personal matters.

Custodian: Someone who is named to take care of assets going to a beneficiary (usually a child) who is not old enough to manage those assets. In states that enforce the Uniform Transfer to Minor Act, custodians are the people who manage the property until the minor reaches the age at which state law says he or she can receive the property. In some states, one can specify at which age the assets are to be received. Custodians act like trustees over the minor’s assets and can usually use the assets toward the health, education, and support of the minor.

Decedent: A deceased (dead) person.

Estate: The total of your assets and liabilities, real and personal property. 

Fiduciary: A person acting for another person. From the Latin fiducia, meaning “trust”. A person (or a business, like a bank or stock brokerage) who has the power and obligation to act for another (often called the beneficiary) under circumstances that require total trust, good faith and honesty. Examples of fiduciaries: trustee of a trust, business advisors, attorneys, guardians, administrators of estates, real estate agents, bankers, stockbrokers, title companies, or anyone who undertakes to assist someone who places complete confidence and trust in that person or company.

Gift Tax: A tax levied on gifts of property to supplement estate and inheritance tax. Exemptions and exceptions to the tax may apply.

Guardian: A person named in a will to care for minor children in the event the legal parent dies or is no longer able to care for the minors. 

Heir: One who inherits property. A person entitled to receive property by state intestacy laws if he deceased did not make arrangements for distributing property before death.

Incapacity: The condition or state of being incapable of handling one’s own affairs, either by mental or physical incapacity.

Issue: A term generally meaning all your children and their children down through the generations, including grandchildren, great-grandchildren, and so on. Also called "lineal descendants."

Joint Tenancy: A holding of property by several persons in such a way that any one of them can act as owner of the whole and take the property by survivorship. When one owner dies, the remaining joint tenants automatically become owners of the deceased owner’s share. Joint tenant interest in property avoids probate. So when a joint tenant dies, his or her share does not have to go through probate- it goes directly to the other joint tenant(s).

Last Will and Testament: An instrument (legal document) whereby one makes a disposition (distribution) of his or her property to take effect after his or her death. 

Powers of Appointment: Power vested in an individual to make decisions affecting disposition and distribution of assets.

Real Property: Land, real estate.

Remainder: Property which remains after the initial distribution of an estate.

Successor Trustee: Individual who succeeds to the power to manage trust assets. A successor trustee can also be a company, firm or institution.

Testator: A person who dies leaving a valid Will. He or she is said to have died testate.

Will: A statement that spells out your wishes at your death, specifically your desires about the distribution of your assets. Also called a Last Will and Testament. To be valid, the will must be signed by the person who made it (the testator), dated (but an incorrect date will not invalidate the will), and witnessed by two people. In some states the witnesses must be disinterested, or in some states, a gift to a witness is void but the will is valid. There are many types of wills: holographic wills are hand-written; nuncupative wills are spoken (oral) wills, and so on.