A living trust, as defined by West’s Encyclopedia of American Law, Edition 2, is “a property right, held by one party for the benefit of another, that becomes effective during the lifetime of the creator and is, therefore, in existence upon his or her death.” Living trusts contrast with testamentary trusts that take effect only after the death of the grantor.
Living trusts may be created by a single individual or multiple family members. When created by various family members, they are sometimes called family trusts. Living trusts are normally revocable, meaning they can be changed or dissolved by the grantor at any time, but irrevocable living trusts can also be established.
Why Create a Living Trust?
Living trusts were devised as a way to shelter wealthy families’ assets from angry monarchs. In 15th century Europe, hostile kings levied charges against noblemen with whom they were displeased and seized the noble families’ assets. Living trusts were a smart legal maneuver designed to give the nobleman continued use of the assets, which were said to belong to the trust and not to the nobleman, and placing them beyond the reach of the king.
Although disgruntled monarchs are no longer a threat, living trusts are still commonly used to separate assets from personal ownership and limit government involvement in estate disbursement. In most states, estates valued at $150,000 or more require full probate. Assets that are not jointly controlled are withheld from heirs until the process is completed, and full probate can take six months to a year. The probate of a large estate may even be a multi-year process.
Living trusts allow transfer of the control of assets, regardless of value, without probate. The assets are owned by the trust and used and monitored by the grantor as trustee. Heirs are usually designated as successor trustees. When the grantor dies, successor trustees have immediate use and control of the assets, but the need for probate is entirely eliminated because the ownership of the property does not change. They still belong to the trust.
Living trusts limit exposure to estate taxes, but their real value lies in the immediate transfer of control. They are also less susceptible to legal challenges from unhappy heirs, and they are subjected to far less public scrutiny than probate records.
Who Should Consider a Living Trust?
Any person or couple seeking to transfer control of assets without probate should examine the benefits of a living trust. Most states allows for a streamlined probate process when an estate is valued at less than $150,000, but no amount of streamlining beats the immediate transfer of control afforded by a living trust.
Living trusts are also appropriate when certain limitations to monetary disbursement are desired. Typical preconditions specify age or milestone restrictions. Funds may be withheld until trust beneficiaries reach a certain age, enroll in college, purchase a home or wed.
Who Can Create a Living Trust?
A living trust can be created by anyone, but licensed attorneys draw up trust documents that are specifically tailored to unique family situations. Providing for a family’s future is one of the most important tasks a father, mother, husband or wife will ever undertake. A living trust drafted by an estate planning attorney is an excellent way to retain asset control and provide uninterrupted financial continuity.