A Living Trust -- An Alternative to a Will

A living trust is a legal document set up to provide for the disbursement of a person's assets after death - as well as providing ongoing care during their lifetime. It can replace the "will" altogether, although there is no provision in a living trust to grant guardianship of young children.  If you like the advantages of a living trust, you can create a supplemental will to address this issue, if applicable to your situation.  

There are some powerful advantages to establishing a living trust, as opposed to a will.  First, a living trust avoids the long, drawn-out probate process.  Second, a living trust is a private document and thus will not become a public record, as does a will when it enters the probate court.

The living trust has tremendous tax benefits, especially for persons with assets of more than $2 million. Under current tax law, a married couple is allowed a $2 million estate tax exemption if they file a will.  The rest of the estate is subject to estate taxes which can range from 2-4% in some states.  If you set up what is called an A-B Trust, each party is entitled to a $2 million exemption, for a total of $4 million, or double the exemption from estate taxes, leaving more money for your beneficiaries.  

There are three components involved in a living trust. The first is "the grantor", which is YOU.  The second is "the trustee" who has a fiduciary responsibility to carry out the grantor's wishes exactly as they are set forth in the trust. The third entity is "the beneficiary", the person or persons who will receive the assets contained in the living trust upon the grantor's death.

To establish a living trust, the grantor must transfer the title of his deeds and assets to the trustee. The trustee then takes over the administration of the estate and takes responsibility for the management of the trust  At this point, "the trust" (not you) owns the property, but this does not mean you lose any control.  You will appoint yourself as the trust's initial trustee, allowing you to do whatever you wish with your property or assets.  You may remove property from or add property to the trust.  You need to include instructions for the payment from the trust for your medical care or long-term care should you become incapacitated.

It is preferable to use a corporate entity, such as a bank, to manage the trust. The biggest advantage is that a corporate trustee will be able to effectively manage the estate in perpetuity, whereas an individual may not  Further protection lies in the strict accounting procedures incumbant upon a financial institution to protect your assets.

Although there are do-it-yourself kits for sale priced from about $150.00, they are not really suitable.  This is a complex proces, especially for larger estates and those involving multiple beneficiaries who might challenge the trust.  It is strongly recommended that you invest in the services of a well-established local estate planning attorney to insure that all state laws are taken into consideration, that a full review of your options are addressed, and that no loopholes are left open.