The Living Trust – How it Works

The person or the couple making the trust (the “Grantors”) simply transfer the title to their assets to the Trust. Because the Grantors also name themselves as the trustees of the living Trust, they retain full control over their assets.  The Living Trust can be changed at will and the assets are managed exactly as they were before the transfer to the Living Trust.  The Grantors also name a “Successor Trustee” to take over in the event of death or incapacity.  The Living Trust operates as a “funnel” to transfer property privately, outside of probate, to the Grantors’ heirs and other beneficiaries.

Advantages

  • Fewer administrative costs at death
  • Can reduce risk of contests and conflicts
  • Creditor and “predator” protection for heirs (optional)
  • Easiest vehicle for marital estate planning
  • Very flexible and easily amended
  • Preferred method of preserving and transferring wealth and inheritances
  • Avoids the stress, costs, delays and publicity associated with the court probate process
  • Act as a “funnel” that centralizes the preservation and distribution of assets
  • Avoidance conservatorship proceedings in the event of the owner’s incapacity
  • Can minimize estate taxes when incorporating A-B trusts and other estate planning methods, to take full advantage of the marital deduction and unified credit
  • Provides enhanced flexibility for your family
  • Can be easily administered without court proceedings – even when you have assets located in more than one state

Wills: Many downsides to using the Courts to transfer wealth

Traditionally, people commonly used the Last Will and Testament as a means of transferring wealth at death. In order to be effective, the Last Will must invoke the probate court’s jurisdiction at death.  Many individuals have sought out alternative methods of wealth transfer due to concerns over high court costs, privacy issues, administrative delays, etc.

Beneficiary Designations: Can be inflexible

Using form contracts to transfer wealth.  Certain assets pass automatically at death by virtue of beneficiary designations. Assets, such as retirement accounts, insurance policies and annuities, carry “beneficiary designations.”  While expedient, beneficiary designations require immediate transfer when this is often undesirable, and there is no flexibility to provide for all possible contingencies.

Joint Tenancy Property: Probate risk and capital exposure

“Joint Tenancy with Rights of Survivorship” enables property to pass to the surviving “joint tenant.”  However, when only one tenant remains, the asset will eventually be subject to probate. Probate could be postponed by always putting another “joint tenant” on the property.  But this strategy comes with a high price tag. Continued joint tenancy may result in increased capital gains exposure – as well as the risk of loss to other joint tenant’s creditors.

Answer? Revocable Living Trust

Using a coordinated “funnel” to transfer wealth  A Revocable Living Trust (RLT) provides a comprehensive alternative. An RLT can funnel all types of assets to the intended beneficiaries, without court intervention, unnecessary capital gains exposure or the risk of loss to the beneficiaries’ creditors. It can also provide more contingency planning than beneficiary designations, and can provide for continuing beneficiary protections for many years after the initial trust-maker has passed away.

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