What are living trusts, how do they work, and who needs them?Living trusts are a tremendous tool - both for asset protection and for estate planning. They have been used in one form or another for hundreds of years. The concept is simple: Someone gives something to someone else for the benefit of another. A Living Trust or Inter Vivos Trust is a trust created and funded during the Settlor's lifetime. (Inter vivos is a Latin term meaning "during life.") This type of trust has great advantages for estate planning:
How Do They Work?There are always three parties involved: A very practical example occurs when you drop a letter into the mail.
You as the Settlor create the fiduciary relationship when you put the letter in the mailbox, and the Postman becomes the Trustee. The Postman has the duty to deliver the letter to the addressee, who is the Beneficiary. In fact, the Postman will only deliver the letter to the addressee and will continue to attempt the delivery in spite of "snow, rain, heat, or gloom of night." During the time the Postman has possession of the letter, she has a legal interest in the letter, but the addressee has the beneficial interest in the letter. Although the Postman has possession of the letter, she can't use it. She holds it for the benefit of the addressee. When the Postman delivers the letter to the addressee, the Trust is terminated. Likewise, if the Postman can't deliver the letter, she will return it to whomever is on the return address, and the property interest is terminated. In all of this, the Rules and Regulations of the Post Office constitute the terms of the Trust. Who Needs Them?We all need living trusts in one form or another. If you have a specific interest in one of the following Trusts, just click on the link for that type. When we buy a house, borrow the purchase price, and give the house as collateral for the loan, we give a Deed of Trust. If you own real estate in more that one state, you really should have a living trust for that real estate. If all you have is a will, you will have to probate the will in every state where the land is located. If you have a living trust, that's all eliminated because the title is already held in the name of the trust. For asset protection purposes, we can create a Land Trust where we place title to a particular piece of real property in a title holding arrangement to put a firewall around the property and to maintain anonymity in the public records. We can create a Spendthrift trust to protect a beneficiary from himself and his creditors. This is particularly helpful for a child who goes through money like a hot knife through butter. For Federal estate tax planning purposes we can create a By-pass Trust in order to limit the size of the taxable estate for a surviving spouse. If we are planning to help a disabled person who might lose Social Security or Medicaid benefits if he receives unexpected assets, we can create a Special Needs Trust which can supplement his needs without affecting his benefits. If we are concerned about having sufficient liquid assets to pay estate taxes, we can create an irrevocable Life Insurance Trust to fund the payment of estate taxes without increasing the taxable estate. Some folks even create a Trust for their Pets in order to provide for the pets after they are gone. Click on the following links for more detailed discussions about these areas of law: Spendthrift Trusts: A Great Asset Protection Tool For Investors. Bypass Trusts: An effective tool for estate tax reduction. Special Needs Trust: Supplemental financial help for disabled persons on SSI
Our law firm understands this important are law and has all the necessary expertise and legal forms to advise our clients about these instruments. For a one-half hour no charge consultation with Dave Guinan, click here. Return from Living Trusts page to Home page
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