Benefits of a Living Trust
7 May 2008
Mayer Brown Legal Update
A living trust, also known as a “revocable trust” can be an effective way to protect your assets while retaining control over them. During your lifetime, you can establish a living trust and transfer all or a portion of your assets to the trust as you choose. You can name yourself as trustee or you can name another individual or a corporation to act as trustee. Since a living trust is revocable, you can change the trust or revoke it completely at any time during your life.
One of the greatest advantages of a living trust is flexibility. You can set out exactly how you would like your assets to be managed in the event that you become disabled or otherwise incapable of handling your financial affairs. In addition, your trust can be drafted to reflect the individual needs of your family. You can provide for minor children, protect the interests of family members with physical or mental disabilities, or use your living trust to create separate trusts tailored to each beneficiary’s maturity and ability to manage his or her finances.
You can also use your living trust as a tax planning vehicle. The living trust itself will not reduce your income or estate taxes. Because you can revoke the trust at any time, the assets of the trust will be included in your estate when you die. However, you can incorporate tax planning measures into the trust to take full advantage of your estate and generation-skipping transfer tax exemptions. You can also reduce the amount of your taxable estate by making charitable gifts in your trust, to be paid after your death.
Avoid Probate Expenses
Your living trust can protect your estate from probate expenses upon your death. Assets that you transfer to your living trust during your lifetime are not subject to probate. The trustees will manage the trust assets according to the terms of your trust without court supervision. If you own real estate in more than one state, you can avoid additional probate costs by re-titling your property into the name of your living trust. You will also need a “pour over will” to transfer any assets you own in your own name directly into your living trust at your death.
When you establish a living trust, you retain greater control over who has access to the information in your estate plan. Unlike a will, a living trust generally is not filed with the probate court and does not become a matter of public record. In some instances, you may need to record your trust if you choose to title real estate in the name of the trust. Financial institutions may also require you to provide them with a copy of the trust in order to open an account for the trust or re-title assets into the name of the trust. You may choose to give financial institutions copies only of certain portions of your trust to preserve the confidentiality of the most sensitive provisions of your estate plan.
In sum, a living trust can serve many purposes while allowing you to retain full control over your assets. You can use the trust for tax planning, save on probate expenses and gear the provisions of the trust to your needs and the needs of your family.