On a regular basis, you probably receive invitations by mail and by telephone to "living or revocable trust" or "estate planning" seminars. Maybe you’ve seen notices in the newspapers about them, too. One of their big selling points is "avoid probate." Certainly, there are times when a living trust is a recommended document but there are probably an equal number of times when a living trust is not recommended. Hopefully we can provide you a more complete picture of living trusts.

First, we need to define "living trust." A living trust is a written agreement established by an individual during his or her life time, hence the term "living trust." The term "revocable" means just that, the trust can be revoked or changed during the grantor’s lifetime. Upon death of the grantor, the trust becomes irrevocable, meaning it cannot be changed. The person establishing the trust is the grantor or settlor. The grantor contributes the assets to be owned by the trust. This is called funding the trust. The trustee is the administrator for the trust. Most of the time the grantor is the original trustee. The beneficiaries are the individuals who receive the benefits of the trust.

The trust specifies how the trustee is to operate the trust, who are the beneficiaries and when distributions are to be made to the beneficiaries.

The question arises, "Why have a trust?" It is a way for a successor trustee to immediately take over and handle your affairs if you become disabled or unable to handle them. A word of caution:  assets MUST be transferred into the trust for it to work right. In reviewing clients’ old documents, Ray has found trusts that were never funded. Having a trust without assets is futile.

One frequent question is, "Do I still need a will?" Yes.  A will is acted upon only in death while a trust can be administered during lifetime. Sometimes a "pour over" will is prepared. This is when assets owned outright by you are not distributed by the will, pour over to the trust and are subsequently distributed according to the terms of the trust. There are some items such as the homestead that probably shouldn’t be owned by a trust.

A frequently used phrase in advertisements is "avoid probate." Probate is not a dirty word. Probate is a legal proceeding which serves a distinct purpose. It provides for the matters of the deceased person to be taken care of with a definite end and closure to bills, claims, taxes and distribution to beneficiaries. Another misconception is that having a living trust will save taxes. Wrong answer.  During the grantor’s lifetime, all the income and benefits go to the grantor; therefore the I.R.S. treats the trust as though it doesn’t exist for tax purposes. However, there are kinds of trusts created for people having in excess of $600,000 which would be beneficial tax-wise.

So, you say, "Is a living trust for me?" Ray will tell you, it depends on the circumstances and what you want to accomplish. Every situation is different. Before you decide, seek legal counsel, discuss your specific situation and then decide.  Make an informed decision. If you have a living trust, have it because it’s right for you.