1) What Is A Revocable Living Trust?

A trust is a contract whereby one person transfers property to another person for-the benefit of a third person. For example, "A" transfers property to "B" to manage for the benefit of "C." If the creator of this arrangement sets it up during his lifetime, it is called a "living trust." If the creator retains the right to dissolve this trust, it is a "revocable" living trust.

A living trust also avoids probate. This is the most widely advertised advantage of a living trust. Although this represents a substantial savings it must be compared with the expense of establishing the trust.

The revocable living trust avoids publicity. Estates which pass through probate are a public record. Not only is the will available to all who want to see it, but also an inventory of the decedent's assets. You can easily avoid this publicity and achieve privacy by transferring assets into the living trust. Property in the trust will be' kept private, both as to its nature, and as to who receives it.

A trust avoids the “conservatorship” problem. A trust can avoid the embarrassment and the publicity surrounding an incompetency hearing if you place all of your assets into the trust prior to the time that you become legally incompetent. Rather than have the court determine whether or not you are incompetent, you can decide who will make that determination. For example, a family doctor, a close friend, your golf buddies, or your children could make that decision.

2) Does A Bank Or Trust Company Have To Be Involved?

No, the law does not require a corporate trustee even though your individual circumstances may suggest this is a good idea. If an individual or a husband and wife are willing and able to assume the responsibilities of being their own trustee, they can do so. When an individual's death, incapacity or lack of desire necessitates it, a successor trustee steps in. The successor trustee may be anyone you choose to nominate, i.e., a good friend, a child over the age of 18, your minister, or a professional such as a trust company or a bank.

3) If I Set Up a Trust, Is A Will Also Required?

Yes. A will is always drafted in conjunction with your trust.

The will acts as a safety net. If you forgot to transfer all of your assets into the trust, then the will would pick those assets up at the time of your death and transfer them into your trust whereupon the assets would be distributed pursuant to the terms of your trust.

4) Why Is It Important To Transfer Assets Into The Trust?

To avoid the agony of probate.. Those assets in the trust will avoid probate, save time and money, and achieve privacy. Assets not registered in the name of the trust will cause a probate. The way you transfer assets into the trust is by changing title from you individually, to you as trustee of your trust. It is not sufficient to just list assets on the schedule attached to the trust. You must actually transfer your assets into the trust in order to avoid probate.

5) Must I Transfer All Of My Assets Into My Trust?

No, but to avoid probate you would want to transfer all of your major assets into the trust. Only those assets in the trust will avoid probate. Three assets are normally not transferred into the trust because they pass free of probate: 1) Automobiles, 2) IRAs (and other types of qualified retirement plans), 3) One checking account in joint tenancy

6) Is It Necessary To Put Personal Property Into The Trust?

No. If your personal property is of nominal value, then it can be transferred free of probate. There is no need to transfer it into your trust. However, if you have valuable antiques, coins, stamps, etc., then these assets should be registered in the name of the trust.

7) Will Property Taxes Be Increased By The Transfer Of My Real Estate Into My Trust?

No, there is a special exemption under Proposition 13. There is no increase in property taxes by transferring your real estate into the trust.

8) Revocable Or Irrevocable?

A living trust may be either revocable or irrevocable.

Revocable means you can cancel or alter its terms. Irrevocable means it is set in concrete and you cannot change it.

9) Can A Living Trust Save Death Taxes?

Yes. A living trust can save substantial amounts in death taxes.

For example, if you and your spouse die in 1997 with a $700,000 estate, a living trust can save you $37,000 in death taxes.

10) Do I Need A Special Number For My Trust?

No. If you alone, or you and your spouse together are acting as trustees of your trust, then the only identification number that will be required for your trust will be your social security number. No special identification number is required. The special number is referred to as the SS-4 number, the 33 number, or the tax I.D. number of the trust.

11) Must Special Income Tax Returns Be Filed?

No fiduciary income tax returns (541's or 1041's) are required as long as you and your spouse, or you alone are acting as the trustee of your trust.

12) Why Doesn't Everyone Have A Trust?

Most people do not know about living trusts. Many people do not take the time to plan for their future. Many people do not like to discuss death nor to plan for it.

13) Does A Living Trust Make Sense For A Single Person?

Yes, these trusts are just as effective for single people as they are for married couples - regardless of whether or not a person is a widow, widower, spinster, or bachelor.

14) Does A Trust Make Sense For Someone Who Has An Estate Of Less Than $600,000?

Yes, because that person can still avoid the agony of probate. Anyone who has $200,000 in assets or more should have a trust because a $200,000 estate would cost $10,300 to probate. The larger the estate, the larger the savings. Trusts can be set up for individuals who have any size estate - even for people with modest estates.

15) Are Legal Fees Establishing A Trust Tax Deductible?

It depends on the type of trust you establish. If you establish a tax-savings trust, then a portion of the fees are tax deductible.

16) Is The Living Trust A New Idea?

No, it has existed for hundreds of years.

17) The Living Trust Is Sometimes Known By Other Names:

"THE A-B TRUST" OR "ABC TRUST"
"THE MARITAL DEDUCTION TRUST"
"THE GRANTOR'S TRUST"
"THE MARITAL & RESIDUARY TRUST"
"THE INTER-VIVOS TRUST"'("Inter vivos" in Latin means living)

18) There Are Many Different Types of Trusts.

The living trust should not be confused with:

"Off-Shores Trusts" - These are trusts set up for tax savings for individuals who have large estates requiring sophisticated tax planning.

"Clifford Trusts" - These are trusts for income tax shelter lasting 10 years and a day.

"Testamentary Trusts" - These are trusts that come out of your last will and testament and go through probate.

"Totten Trusts". - This is not a true trust, but rather a way to take title to your bank account so as to avoid probate at death, e.g., "A" as Trustee for "B." These are also called "pay on death" accounts.

19) I Already Have A Living Trust.

If you already have a living trust, ask yourself several questions:

1. Has it been updated since September of 1981, to reflect the current tax law that allows you to postpone the payment of tax and to take advantage of the anti-gigolo and anti-floozy provisions?

2. Have you funded your trust? (i.e., have you re-registered all of your assets to your name as trustees of your trust?)

3. Have you coordinated the way you hold title with your trust so that assets will pass into the trust?

4. Why not get a second opinion of your old trust from an attorney who specializes in trusts?

20) Why Didn't My Attorney Tell Me About The Living Trust?

Many attorneys are not knowledgeable about the living trust because they do not specialize in estate planning. It's also possible your attorney was told you only wanted a will, or everything in joint tenancy with your spouse, or the least expensive estate plan. If you had asked your attorney to recommend the best estate plan for you, the living trust would have been mentioned.

21) Does The Living Trust Restrict My Rights To Borrow On My Assets In The Trust?

No. Although lenders may want to see a copy of the trust, the trust does not restrict your rights to borrow on assets in the trust in any way. Some lenders may prefer to lend on real property outside of a trust and ask you to transfer that real property out and then secure the loan. Always make sure that the lender transfers your real property back to your trust.

22) Does This Protect Me Against My Creditors?

No, the living trust does not act as a barrier to creditors for the creators of the trust because the trust is revocable. However, at the death of the creators of the trust, the "spend-thrift" clause can act as a legal barrier for funds that continue to be held in the trust for the benefit of the children.

23) What Rights Does The Surviving Spouse Have In The Trust Assets?

If the surviving spouse is the surviving trustee, he or she has the right to buy and sell and transfer any of the assets. The surviving spouse is usually the beneficiary of the trust assets and, therefore, has the right to all the income and to invade the principal. The surviving spouse has the freedom to do whatever he or she wants with the assets in the trust.

24) Does My Will Avoid Probate?

No. Your will does not avoid probate. All the assets passing through the will pass through probate. Probate is a title-clearing process. Probate is expensive, time-consuming, and public. Most people want to avoid it. You can avoid probate with a living trust.

25) What Will You Charge Me For A Living Trust'.?

That depends on how much time is required and how difficult the job is. Each client has different objectives, family circumstances, and assets going into the trust. I will give you a set fee immediately if I can predict in advance what will be involved. Otherwise, I will give you an estimated minimum and maximum fee. Generally fees range between $1,100 to $2,500 depending upon the complexity of the trust and the surrounding documentation.

26) Do I Need A Lawyer To Establish My Trust Or Can I Do It Myself.

You can attempt to prepare your own trust without an attorney but the results may be a disaster. Chief Justice of the U.S. Supreme Court, Warren Burger, prepared his own will and messed it up. Burger chose not to consult an estate planning attorney and the decision cost his family about $457,000 of his $1,800,000 estate because of unnecessary taxes and court costs.