EVOCABLE LIVING TRUSTS
A revocable trust is an important estate planning document that resembles a will. Unlike a will, however, a living trust operates during the lifetime of the person who established it (the “grantor”). A revocable living trust can hold assets during the grantor’s lifetime and contains instructions for the management of assets should the grantor become disabled. Properly drawn trusts can also avoid the costs and delays of probate at the grantor’s death and work as a mechanism for managing or distributing the grantor’s assets after death.

How It Works:
There is at least one trustee in a living trust and one or more beneficiaries. The trust can hold some or all of the grantor’s assets. After the trust is created, assets that are being transferred to the trust are re-titled from the grantor’s name to the name of the trust. The trust can also be set up to receive estate assets such as life insurance proceeds and death benefits from the grantor’s employee benefit plans. If the trust holds life insurance, the grantor has continued access to the life insurance cash values while they are alive.

During the grantor’s lifetime, assuming no disability, they retain control of the trust’s assets and can revise or revoke the trust at any time. The trust does not have to file a tax return or pay taxes, but the grantor does. Whether or not the grantor receives income from the trust, the IRS regards the assets as still belonging to the grantor for income-tax purposes. Because the grantor has the right to revoke the trust or remove assets, revocable trusts have no effect on federal estate or gift taxes.

At the grantor’s death, assets in the trust are distributed to the heirs according to the grantor’s directions. Because the trust document, rather than a will, directs how the assets will be distributed, the trust assets avoid probate. Details of a trust are not a matter of public record and distribution is more private.

UNLIKE A WILL, HOWEVER, A LIVING TRUST OPERATES DURING THE LIFETIME OF THE PERSON WHO ESTABLISHED IT. A REVOCABLE LIVING TRUST CAN HOLD ASSETS DURING THE GRANTOR’S LIFETIME AND CONTAINS INSTRUCTIONS FOR THE MANAGEMENT OF ASSETS SHOULD THE GRANTOR BECOME DISABLED.

Purpose:
In addition to providing privacy, a living trust makes it more difficult for anyone to challenge the disposition of the grantor’s estate. By consolidating assets into one place, a living trust simplifies estate administration and expedites the transfer of trust assets to the grantor’s heirs, reducing estate settlement costs. A living trust is an extremely flexible instrument for asset transfer. It gives the grantor the ability to provide detailed instructions for the distribution of assets – in effect, previewing the management of their estate. The trustee can also be instructed to withhold or distribute inheritances at their discretion based on the trustee’s understanding of the grantor’s objectives. Another reason for creating a living trust is that if the grantor becomes incapacitated while serving as trustee, a successor trustee can immediately step in to manage the trust assets. Without a trust, a guardian or conservator would have to be appointed to manage these assets. Some states require naming a co-trustee to mange trust assets in the event of death, disability or incapacity.

Creation:
A living trust should only be prepared by an attorney who has experience with trust planning and understands the grantor’s situation and objectives.  It is important to re-title assets that are intended to be controlled by the trust. With a living trust, its a good idea to have a “pour-over” will, which gives instructions for the distribution of assets not in the trust. An estate can claim an estate tax deduction for charitable gifts made at death.