Living Trusts

A trust is a legal fiduciary arrangement with respect to property. Many estate planning experts recommend having a living trust as the foundation for an estate plan and then using special purpose trusts for other situations.

A living trust can be revocable, meaning it can be changed at any time until death at which time it becomes irrevocable. For tax purposes, the assets in the trust still belong to the grantor (the person setting up the trust). The entire value of the assets in a revocable living trust is included in the grantor's gross estate upon death and may be taxable if over the current exemption amount.

Assets in a living trust, however, escape probate. The trustee distributes assets per the grantor's instructions, bypassing probate.

Living trusts are popular for the following reasons:

• Provide professional money management while someone is traveling or in the event of illness or incapacity.
• Allow assets to pass outside of probate avoiding costly fees and delays.
• Keep assets private.

Transferring Assets to a Trust

How do you properly transfer assets into a trust? By having them re-titled in the trust's name. Seek professional advice regarding which assets, if any, to transfer into a living trust. A living trust may not be the appropriate vehicle in which to title one's assets.

For example, most attorneys generally recommend against placing retirement accounts (IRAs, Keoghs, company pensions, etc.) in a living trust since the transfer is considered a taxable distribution and could even subject one to federal and any applicable state penalties if under age 59 ½. Instead, the trust can be named as primary or contingent beneficiary. Seek the guidance of a qualified professional since there are advantages to naming a spouse as beneficiary. (Spouses can roll the account into their own retirement account and continue tax-deferred accumulation.)

Surprisingly, more than 50% of the people who pay to set up living trusts don't fund them! If you have a trust, you may want to check to make sure the assets you desire to be placed in the trust are actually titled correctly.

Trust Attorneys

Consult with a qualified trust attorney before making any decisions about which trust or trusts might be right for a specific situation. Attorneys will draft the documents; however, it is up to the grantor to make sure the trust is properly funded.