What is a living trust?  How is a living trust different from a will?  Is a living trust better than a will? Yes… Read more below.

A living trust is a legal document that partially replaces a will. Sometimes it is called a “revocable living trust”, a “probate avoidance trust” or just a “living trust”.  Lots of names – all the same thing. It is a way to pass your money, real estate, bank accounts, stock, furniture, jewelry, gun collection, etc. (I will refer to this as “All of Your Stuff” or AYS hereinafter, a very technical term) without paying probate tax and without going through the expense and time of probate, which can be difficult and drawn out, particularly when your family has lost a loved one…. in this case you!

Why do I need one? OR … Why should I avoid probate?

The living trust has two pretty cool features right out of the gate.  First, the most commonly discussed and understood function of holding AYS (All Your Stuff).  This is important because without this feature AYS would go through probate.  Probate is a process in most states where:

  1. You die (sorry – has to start with this – this is one of two things that is certain in life), then
  2. Your will is filed with the Court (probated) in every jurisdiction where you have property, (so if you own a home in Virginia and have a vacation home in Florida .. two probates) then
  3. An executor is appointed (usually under the will), who will sometimes have to post a bond of their own money for the term of the probate, then
  4. The executor must file a bunch of forms – usually a list of heirs and an inventory, to start with, which lists everyone who is getting something from your estate and what all of your property consists of in the public record, then
  5. STOP right there – so thus far as of step four AYS and all of your heirs names and contact information are now a matter of public record, your family member of close friend has now come out of pocket to do you a favor by posting a bond for your probate and they have had to travel to one or more locations to open the probate and get sworn in.
  6. The executor must now complete an accounting and figure out how much AYS is worth – sometimes there is a dispute with the commissioner over the values the executor presents and probate gets extended – it can take a year or more in some cases during which time the executor must file accountings. Usually the executor has hired an accountant or law firm (yeah!) and paid them a lot of money to do this work, sometimes as much as 10% of the total estate, then
  7. When everyone agrees on the values, finally, the commissioner assess a tax against the value on all of it, anywhere from 2% to 7%, depending on where your property is located and on which state you were a resident of.
  8. HOLD ON – now your heirs have suffered through maybe a year of waiting, your estate has paid a lawyer and/or an accountant and your estate is reduced by anywhere from 5 to 15%. Even with a small estate the math is bad:
  9. Your estate is finally distributed, less the cost and tax (the second certain thing in life) and after a whole lot of time, money and effort.

Equity in Home                                          $100,000

Bank accounts, Brokerage accounts       $50,000

Furniture, cars etc.                                     $20,000           

Total                                                              $170,000

Probate Tax + Cost of Probate   @10%  $17,000


How does a living trust avoid probate? It is like it is not even there. You set it up, it takes your social security number (the IRS calls this a disregarded entity) and we help you put your stuff into the trust (a vital part of the plan) then you promptly store it away and go about your life secure in the fact that you are covered. Nope, set it up and leave it alone. Obviously with anything – when your life changes (new children, new marriage etc. you need to make updates.)Can you still use and sell AYS? Yep. The Federal Garn-St. Germain Law deals with real estate title transfers and specifies when mortgage lenders cannot enforce a due-on-sale clause. One such important case is when your property (real estate title) is transferred into a living trust. Conclusion

A living trust lets you ensure your assets will be managed according to your wishes-even if you become unable to manage them yourself. When you become incapacitated the successor trustee can manage your assets and affairs related to assets in the trust. If you die, your successor trustee, a person you trust and choose, takes over as the manager of the trust, gathers your assets and pays taxes, debts and  claims without the cost and supervision of the court. If your assets are not in a living trust at your death then your estate goes through probate and is public, subject to probate tax and court supervision. It can take a great deal of time, money and effort to complete probate. A living trust avoids this.

There is a mortgage on my home, can I still move the home into the living trust?

Yep. See above. Because the trust is completely revocable you can buy stuff, sell it and use it like the trust is not even there, as long as the grantor (you) are alive.

Do I need to file anything for a living trust?  With a living trust, your property is held (owned) by the trust and administered for your benefit during your lifetime, and then, much like a will, transferred to your heirs (called beneficiaries in a trust) when you die. Usually you, the creator (called a “grantor” or “settlor”) are the initial trustee of the trust while you are alive. Because of this, despite the fact you have placed your property into the trust, you can control those assets as if they were held in your own name while you are alive. We usually create a revocable trust for estate planning, which means you can cancel or change the trust anytime as long as you have legal capacity (i.e. you are competent).

How does a living trust work now, while I am alive? It does not die. Since it is not a person, after you die it continues to exist. Without an estate to sit in your assets skip around the process and go right into the hands of your Trustee. The trustee acts like an executor except – they don’t post a bond, they don’t have to file anything with anyone publically, they don’t have to pay probate taxes, all they do is private and protected from the public peaking in, and they don’t have to wait for someone to approve their distribution to your spouse, children and family.

Avoiding probate can save your beneficiaries time and money and keep your private affairs out of the public record, which are otherwise filed with the court and public (a list of your assets, the names and locations of your heirs etc.)

In short, a living trust is the easiest, least expensive and headache free way to protect yourself and your family from hassle, tax and unwanted interlopers.  Call me at 800-747-9354 (US Toll Free), or email tdunlap@dbllawyers.com.

Best of luck!

Posted in: Estate Planning

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