Using Living Trusts

A living trust is a fully revocable entity that you set up during your lifetime which holds your significant assets for your benefit. While you are living, you have full and complete access to your assets and the cash flow derived from those assets, as if the trust didn't exist at all. At death the trust becomes irrevocable and its income and assets are disposed of under terms specified by you in the trust documents.

The main advantage of the living trust is that its assets are distributed without going through the time consuming and expensive process of probate, a legal proceeding that is supervised by the court system and various government agencies. The probate process is also a public proceeding where your personal financial affairs would be available to anyone who inquires. Even with a living trust, there are expenses associated with the preparation of an estate tax return, valuation and transferring assets, and making a formal accounting and settlement.

Some additional factors to consider are:

• Quicker distributions: Probating a will and gathering assets into the estate for distribution can take quite a bit of time. With a living trust, by contrast, all assets already are gathered together, so the trustee can make immediate distributions and continue paying bills as usual.
• Protecting minors: Living trusts can help avoid the need to appoint a guardian to represent children's interests, which can cause delay and add to administration costs.
• Multiple residences: Those with real estate in more than one state can avoid the problems and expense of multiple probate proceedings by putting the out-of-state real estate in a living trust.
• Income taxes: If you create a living trust, you will be taxed on its income in the same way as if you continued to own the property outright.
• Estate taxes: If you are married, proper estate planning can also result in significant estate tax savings. Each individual has a personal unified credit that is available, whereby a certain amount of net assets (currently $675,000, increasing to $1 million by the year 2006) may be passed on to persons, other than your spouse, free of estate taxes. If your joint estate is larger than the unified credit amount, the basic strategy is to preserve each spouse's unified credit by placing assets in the amount of the credit into a separate trust that is not specifically earmarked for the surviving spouse.

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Estate planning techniques can be quite complex and the above discussion is, by no means, intended to be complete. If you currently do not have an estate plan and wish to begin the planning process, please contact us to discuss your situation.