Robert J. Kolasa, Ltd.
Estate Planner, CPA & Former IRS Attorney
What is a Living Trust?
A Living Trust is a written legal document that partially substitutes for a Will. Under a Living Trust estate plan, many of your assets (i.e., your home, bank accounts and stocks) are transferred into the trust, administered for your benefit during your lifetime, and then transferred to your beneficiaries when you die.
Most people name themselves as the trustee in charge of managing trust’s assets. This way, even though your assets have been put into the trust, you remain in control of your assets during your lifetime. You can also name a successor trustee (a person or a bank trustee department) who will manage the trust’s assets if you are incapacitated or unwilling to do so yourself.
Living Trusts are generally revocable and may be amended or revoked at any time by the person or persons who created it (commonly known as the grantor) as long as he, she, or they are still competent.
Your Living Trust agreement:
Gives the trustee the legal right to manage and control the assets held in your trust
Instructs the trustee to manage trust assets for your benefit during your lifetime
Names the beneficiaries (persons or charitable organizations) who are to receive your trust’s assets when you die
Gives guidance and certain powers and authority to the trustee to manage and distribute your trust’s assets
The trustee is a fiduciary, which means he or she holds a position of trust and confidence and is subject to strict responsibilities and very high standards. For example, the trustee cannot use your trust’s assets for his or her own personal use or benefit without your explicit permission. Instead, the trustee must hold and use trust assets solely for the benefit of the trust’s beneficiaries
A Living Trust can be the most important part of your estate plan.
Living Trust Benefits
Generally less expensive than probate
Provides for protection and control of your assets upon disability
Eliminates the need for a court appointed guardian in the case of the grantor’s disability or in the case of minors inheriting property
Speed of asset distribution. Property is generally distributed earlier to beneficiaries than through a Will based estate plan
Avoids ancillary probate in other states (i.e., vacation home in Wisconsin)
Cannot be contested as easily as a will
Puts your house in order. One of the hallmarks of the Living Trust is that assets have to be identified, assembled and then transferred. It is this very task that many people want to avoid and which drives up the cost of probate administration
Funding your Living Trust
The transfer of assets into a living trust is called “funding.” Once your trust has been signed, trust funding remains an important task to accomplish. To avoid court-supervised guardianship proceedings if you should become incapacitated, or the probate process at death, your assets should be transferred to the trustee of your living trust (and/or appropriate beneficiary designations made for your retirement plans and life insurance policies). Deeds to your real estate must be prepared and recorded. Bank accounts and stock and bond accounts or certificates must be transferred as well. These tasks are not necessarily expensive, but they are important and do require some paperwork. For example, title would generally be changed on all real estate and other titled property to “John Doe, as trustee of the John Doe Declaration of Trust dated July 4, 2015.”
Click "Funding Trusts" (seminar outline) to review a seminar presentation on trust funding I gave before members of the Lake County Bar Association.
In a Living Trust, YOU CAN BE:
GRANTOR – The person creating the trust -YOU.
TRUSTEE*** – The person managing the trust assets - YOU. However, you can name a family member or bank trust department to act as trustee or co-trustee. You need to name a successor trustee to manage trust assets if you become unable to do so because of death or incapacity.
BENEFICIARY – The person receiving the benefit – YOU. You still control your property after it is transferred into trust and can use it anyway you please, just as you could before you transferred the property into trust.
***In some cases, a bank trust department may be a suitable trustee