Table of Contents
| Introduction |
| 1. An Overview of Living Trusts |
| 2. Human Emotions and Living Trusts |
| 3. Common Questions About Living Trusts |
| 4. What Type of Trust Do You Need? |
| 5. Nolo's Tax-Saving AB Trust |
| 6. Choosing What Property to Put in Your Living Trust |
| 7. Trustees |
| 8. Choosing Your Beneficiaries |
| 9. Property Left to Minor Children or Young Adults |
| 10. Preparing Your Living Trust Document |
| 11. Transferring Property to Your Trust |
| 12. Copying, Storing and Registering Your Trust Document |
| 13. Living With Your Living Trust |
| 14. After a Grantor Dies |
| 15. A Living Trust as Part of Your Estate Plan |
| 16. Wills |
| 17. If You Need Expert Help |
| Glossary |
| Appendix A. How to Use the Forms CD-ROM |
| Appendix B. Forms |
| Index |
|
Read an Excerpt
Introduction
Living trusts are an efficient and effective way to transfer property, at your death, to the
relatives, friends, or charities you've chosen. Essentially, a living trust performs the same function as a will, with the important difference that property left by a will must go through the probate court process. In probate, a deceased person's will is proved valid in court, the person's debts are paid, and, usually after about a year, the remaining property is finally distributed to the beneficiaries. In the vast majority of instances, these probate court proceedings are an utter waste of time and money.
By contrast, property left by a living trust can go promptly and directly to your inheritors. They don't have to bother with a probate court proceeding. That means they won't have to spend any of your hard-earned money (at least, I presume it was hard-earned) to pay for court and lawyer fees.
You don't need to maintain separate tax records for your living trust. While you live, all transactions that are technically made by your living trust are simply reported on your personal income tax return. Indeed, while some paperwork is necessary to establish a probate-avoidance living trust and transfer property to it, there are no serious drawbacks or
risks involved in creating or maintaining the trust.
These trusts are called "living" or sometimes "inter vivos" (Latin for "among the living") because they're created while you're alive. They're called "revocable" because you can revoke or change them at any time, for any reason, before you die.
While you live, you effectively keep ownership of all propertythat you've technically transferred to your living trust. You can do whatever you want to with any trust property, including selling it, spending it, or giving it away. A revocable living trust becomes operational at your death. At that point, it allows your trust property to be transferred, privately and outside of probate, to the people or organizations you have named as beneficiaries of the trust.
Living Trusts Explained
A trust can seem like a mysterious creature, dreamed up by lawyers and wrapped in legal jargon. Trusts were an invention of medieval England, used as a method to evade restrictions on ownership and inheritance of land. Don't let the word "trust" scare you. True, the word can have an impressive, slightly ominous sound. And trusts have traditionally been used by the very wealthy to preserve their riches from generation to generation. (Indeed, isn't one
version of the American dream to be the beneficiary of your very own trust fund?) But happily, the types of living trusts this book covers aren't complicated or beyond the reach of ordinary folks. Here are the basics.
The Concept of a Trust
A trust is an intangible legal entity ("legal fiction" might be a more accurate term). You can't see a trust, or touch it, but it does exist. The first step in creating a working trust is to prepare and sign a document called a
Declaration of Trust.
Once you create and sign the Declaration of Trust, the trust exists. There must, however, be a flesh-and-blood person actually in charge of this property; that person is called the trustee. With traditional trusts, the trustee manages the property on the behalf of someone else, called the beneficiary. However, with a living trust, until you die, you are the trustee of the trust you create and also, in effect, the beneficiary. Only after your death do the trust beneficiaries you've named in the Declaration of Trust have any rights to your trust property.
Creating a Living Trust
When you create a living trust document with this book, you must identify:
- Yourself, as the grantor -- or for a couple, the grantors. The grantor is the person who creates the trust.
- The trustee, who manages the trust property. You are also the trustee, as long as you (or your spouse, if you make a trust together) are alive.
- The successor trustee, who takes over after you (or you and your spouse) die. This successor trustee turns the trust property over to the trust beneficiaries and performs any other task required by the trust.
- The trust beneficiary or beneficiaries, those who are entitled to receive the trust property at your death.
- The property that is subject to the trust.
A Declaration of Trust also includes other basic terms, such as the authority of the grantor to amend or revoke the document at any time, and the authority of the trustee.
How a Living Trust Works
The key to establishing a living trust to avoid probate is that the grantor -- remember, that's you, the person who sets up the trust -- isn't locked into anything. You can revise, amend, or revoke the trust for any (or no) reason, any time before your death, as long as you're legally competent. And because you appoint yourself as the initial trustee, you can control and use the property as you see fit while you live.
What Is Competence?"Competent" means having the mental capacity to make and understand decisions regarding your property. A person can become legally "incompetent" if declared so in a court proceeding, such as a custodianship or guardianship proceeding. If a person tries to make or revoke or amend a living trust and someone challenges his or her mental capacity, or competence, to do so, the matter can end up in a nasty court battle. Fortunately, such court disputes are quite rare.
And now for the legal magic of the living trust device. Although a living trust is only a legal fiction during your life, it assumes a very real presence for a brief period after your death. When you die, the living trust can no longer be revoked or altered. It is now irrevocable.
With a trust for a single person, after you die, the person you named in your trust document to be successor trustee takes over. He or she is in charge of transferring the trust property to the family, friends, or charities you named as your trust beneficiaries.
With a trust for a married couple, the surviving spouse manages the trust. A successor trustee takes over after both spouses die.
There is no court or governmental supervision to ensure that your successor trustee complies with the terms of your living trust. That means that a vital element of an effective living trust is naming someone you fully trust as your successor trustee. If there is no person you trust sufficiently to name as successor trustee, a living trust probably isn't for you. You can name a bank, trust company, or other financial institution as successor trustee, but that has
serious drawbacks.
After the trust grantor dies, some paperwork is necessary to transfer the trust property to the beneficiaries, such as preparing new ownership documents. But because no probate is necessary for property that was transferred to the living trust, the whole thing can generally be handled within a few weeks, in most cases without a lawyer. No court proceedings or papers are required to terminate the trust. Once the job of getting the property to the beneficiaries is accomplished, the trust just evaporates, by its own terms.
There are a couple of exceptions here. First, a prosperous couple may create what's called an AB living trust to avoid probate and save on overall estate taxes. When one spouse dies, that spouse's trust keeps going until the second spouse dies. A lawyer or other financial expert must be hired to divide the trust property between that owned by the deceased spouse's trust and that owned by the surviving spouse.
Another type of trust that can last for a long time is called a child's trust. The trust forms in this book allow you to create a child's trust if you wish, to leave trust property to one or more minors or young adult beneficiaries. These trusts are managed by your successor trustee and can last until the young beneficiary reaches the age you specified in your Declaration of Trust. Then the beneficiary receives the trust property, and the trust ends.
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