Other Living Trust advantages 

In addition to the avoidance of probate and averting both estate and capital gains taxes, there are many other distinctions and advantages to a Living Trust. Those of significant importance are reviewed here for your edification:

1. Unlike a will, which becomes public record the moment a probate file is opened, an unrecorded Living Trust maintains family privacy of financial details. Information concerning the size of the estate and the identity of those who will inherit it remain the private business of the immediate family. Recording the trust at the Register of Deeds office will serve only to turn your trust into a public record,  an open book for anyone off the street that would care to stumble in and inspect your most private wishes. Trusts should be recorded only under very special circumstances.

2. A Living Trust avoids the possibility of embarrassing incompetence hearings in Probate Court with the ultimate appointment of some stranger as conservator for your financial affairs when you become old, old, old. Upon the signatures of two physicians the successor trustee has the power to take over management of the trust should the primary trustee(s) become physically or mentally incapacitated. This is not possible with a will. A will can kick into gear only upon the death of its maker.

3. Probate Court has no authority to withhold inheritances from children having reached legal age but without the experience or foresight to manage their windfall. A Living Trust permits inheritances to minor children or immature children to be either delayed until the children reach both a legal and mature age,  then be parceled out in installments over a period of years.

4. Being a private contract, the terms of the trust contract are very difficult to contest by disgruntled heirs or any other third party.

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Other Living Trust facts you should know

A Living Trust contract does not require registry or recording with any municipality, court or county. The agreement is a private contract between two people: the trust maker and the trustee. Requirement to record a private contract making its contents public record would be unconstitutional. Remember, there is no way your trust could remain unknown to your beneficiaries. The assets must be registered in the name of the trust with your financial custodians.

The trust is actually about 500 years older than the "modern" probate system. The freedom to create a Living Trust is indirectly protected by the Tenth Amendment to the United States Constitution which leaves certain personal rights to the individual states, among them the right to form a corporation, do business under an assumed name or create a trust. The outlawing of trusts in America would not only require a formal amendment to the United States Constitution, but also raise havoc with every corporation doing business in the country including General Motors, General Electric, General Mills and Grandma Ginny's General Store. You can safely bet the rent money that this will not happen.

Based on English Common Law after being ruled legal in Chancery Court of England in 1535 A.D., a Living Trust is valid in all 50 states and every free country of the world. Its bylaws can be administered by any state chosen by the grantor of the trust.

A Living Trust contract can be amended by the grantor of the trust in about five minutes with a special amendment form included with all trusts created by the National Center for the Avoidance of Probate. Simple modifications such as changing a figure from 9 to 10 percent, can be affected without need of the special amendment form. The trust grantor can simply cross out the figure "9", write the figure "10" above it and sign their initials just as one would make a simple change to a check.

A revocable Living Trust is revoked by reversing the procedure that originally created the trust, namely titling the assets back into the personal names of the trust makers, a right that is available to the trust maker at any time. No documents of revocation need to be filled out. When the assets are all back in the personal possession of the trust maker there are no assets remaining in the trust which means there is no trust. The only exception would be if the trust makers had engaged a corporate trustee such as a bank. In such a case the trust makers simply send the corporate trustee a registered letter stating that trustee’s services are no longer needed.

Assets that name a beneficiary on the title of the asset (including assets that include a POD or TOD, i.e. Payment on Death or Transfer on Death) such as insurance policies, annuities, 401Ks, IRAs, etc. need not be placed in the trust, but should be reviewed to make sure contingency beneficiaries have been listed on them. By naming your trust as a contingent beneficiary, the asset will flow into the trust and be distributed by the terms of the trust in the event that both trust maker and the primary beneficiary (usually the spouse) die in a common accident.

Assets do not require an evaluation when placed in the trust nor should assets be formally listed in the trust contract. However, as a helpful courtesy to your successor trustee, list your assets informally on a separate piece of paper and attach it to the trust contract with a paper clip or staple. To determine any estate tax liability, trust assets should be evaluated immediately after the surviving spouse dies.

Automobiles, boats and recreational vehicles generally pass to the heirs outside of probate in most states. Yet, to avoid possible misunderstandings, it is wise to place such items in the name of the trust.

A revocable Living Trust does not render its maker judgement proof nor was it ever so intended. Though the assets are owned by the trust rather than by the maker or trustee of the trust, the trust maker (because of the trust's revocable status) still has the power to amend, revoke or invade the trust for funds and is thus considered collectable.

For Estate Tax purposes, all assets both inside and outside of the trust are considered a part of the estate. This would include the face value of insurance policies, IRAs, 401K plans, annuities, pensions, etc. If accomplished three years before death, life insurance placed in its own Irrevocable Insurance Trust will not be considered a part of the estate

Go to Lesson 9