What You Should Know About Estate Planning With a Living Trust

INTRODUCTION
In recent years, living trusts have grown increasingly popular as substitutes for wills in
estate planning. They are sometimes called revocable trusts or inter-vivos trusts. Living
trusts can have several advantages over wills, including avoiding probate, avoiding
guardianship, maintaining liquidity, and keeping privacy. You can create a living trust with
a simple trust document and change it at any time. You can transfer all of your assets to
the trust but continue to use and manage them during your lifetime. After you die, your
trustee will transfer ownership of the assets to the beneficiaries named in the trust.

An important benefit of living trusts is the speed with which your property can be
transferred to your heirs after your death. In addition, a living trust is private. Only you,
your trustee, and your beneficiaries will know the value of the trust property, how it is to be
distributed, and the names of your beneficiaries. This pamphlet reviews the basics of how to
create and use a living trust. Your lawyer can help you decide whether a living trust is
appropriate in your circumstances and prepare a trust document that meets your goals.

USING A LIVING TRUST
Most people understand the importance of a will, but many are not familiar with trusts.
Both a will and a trust can be used to transfer your property when you die, but the similarity
ends there. A will has no effect until you die, while a living trust becomes operative during
your lifetime to manage your assets. While a will is part of the public record a trust is not,
thus providing greater privacy. Trusts are usually easier to amend than wills and less likely
to be contested by you heirs.

You can use a living trust to make decisions about your old age care. The trust can specify
your preference for care by your family or in a nursing home. If you become disabled or
incompetent, your trust will control who will care for you and how your money will be
managed. Without a living trust, a court might need to appoint a guardian if you become
incapacitated. As with probate, guardianship proceedings can be costly and time consuming.
A living trust provides a way to avoid legal proceedings to appoint a guardian. A living trust
may also help you in a variety of other circumstances. For example, you can use a
management feature of living trusts to appoint a professional trustee for the elderly, for the
inexperienced persons who have recently inherited wealth, and for minors. Living trusts are
also useful for those lacking time to manage their property, such as entertainers,
entrepreneurs, and busy professionals. If you own real estate in more than one state a
living trust can help avoid probate in each state. Probate in multiple states increases the
cost and time to distribute your property to your heirs.

CREATING A LIVING TRUST
Your lawyer can prepare a living trust agreement that appoints a trustee to manage your
property for your beneficiaries. To maintain control, you can be your own trustee.
Commonly, the person creating the living trust is the first beneficiary while other
provisions transfer the property to their heirs upon death. The trust agreement will provide
details on your rights to change the trust, the duties of the trustee, how to distribute your
property, how to provide for your family, and when and how to select a successor trustee.

You can cancel or change any of the provisions of your trust document, including the
beneficiaries, the property they are to receive, and the trustee. You should review your
trust every year to assure that it still meets your needs. Your lawyer can advise you about
the legal and tax effects of your proposed changes and prepare a document that will
accomplish those changes.

CHOOSING A TRUSTEE
As noted above, you can serve as your own trustee or you can appoint a professional trustee
such as a bank or trust company. Most people appoint an individual such as their spouse, a
relative, a friend, their lawyer, or other advisor to serve as successor trustee. When
deciding whom to select as trustees, you should consider whether they are worthy of your
trust and are willing to accept the job.

A professional trustee may be the best choice if your property will be difficult to manage or
distribute. The disadvantages of professional trustees are that they are impersonal and
charge annual fees ranging up to two percent of the value of the trust assets. Furthermore,
many professional trustees are unwilling to serve if the value of the trust assets is less than
$100,000.

The trust document will describe the duties of the trustee to manage the trust property,
keep records, prepare tax returns, and make distributions to beneficiaries. The trust
document can also designate a successor trustee or provide instructions on how to select the
successor.

TRANSFERRING PROPERTY TO YOUR TRUST
After creating your trust, you must complete the formality of transferring your property to
the trust. For example, instruct your broker to transfer your stocks and bonds into the
name of the trust. Tell your insurance agent to assign your life insurance policies to the
trust. Deeds transferring your real estate should be prepared and recorded in every county
where you own real estate.

AVOIDING PROBATE
Although your living trust can help you to avoid probate for some of your property, you may
still need a will. It may be inconvenient to transfer certain property, such as your car or
personal checking account to a trust. Such a transfer could make it difficult to insure your
car; it might be harder to obtain credit if your checking account is not kept in your name. A
will may still be needed even if you transfer all of your property to a trust. A will is needed
to appoint a guardian for your minor children. A will is also needed for assets that you
acquire after the creation of the trust or may have neglected to transfer to your trust, such
as furniture, clothing and jewelry. The will can have a "pour-over" provision to transfer
your property to the trust when you die. Such a "pour-over" provision will cause your
property to be distributed according to the terms of your trust.

STATE LAW
You can use a living trust to choose the state for administering your estate. The state for
your trust can be different from the state where you reside. This can enable you to select a
state that has laws that are most favorable to you for income tax and inheritance tax
purposes.

TAX PLANNING
For tax purposes, the trust property is treated as if you remained the owner. You will report
income from the trust on your federal income tax return until your death. However, the
creation and funding of a living trust does not have any federal gift tax consequences. A
trust can be used to avoid estate taxes. You lawyer can help you to design a trust that
provides the most favorable tax treatment for you and your heirs.

CONCLUSION
Living trusts have many advantages in estate planning. Unlike wills, living trusts do not
require lengthy and costly probate proceedings. Your property and heirs will not be listed in
public records in a courthouse. And your property can be transferred to your heirs almost
immediately after your death. The advantage of the living trust must be weighed against the
expense and effort of creating and administering the trust. Ask your lawyer whether a
living trust is the right estate planning tool for you. Your lawyer can carefully draft a trust
document to meet your needs and objectives and help you to reduce taxes for yourself and
your heirs. Your lawyer can also help you prepare other estate planning documents, such as
a will, a durable power of attorney, and a health care power of attorney.

LIVING TRUST CHECKLIST

BENEFITS OF LIVING TRUST

A. Avoiding probate
B. Preserving privacy
C. Professionally managing your property
D. Handling out-of-state real estate
E. Avoiding guardianship when incapacitated
F. Avoiding will contests and family disputes
G. Designating trustees and their successors


NAMING YOUR BENEFICIARIES

A. Yourself
B. Your spouse
C. Family
D. Friends
E. Charitable organizations


KEEPING TRUST RECORDS

A. List of trust property
B. Record of income and expense
C. Tax returns


KEEPING TRUST RECORDS

A. Real estate
B. Bank accounts
C. Stocks and bonds
D. Life insurance
E. Furniture, jewelry, etc.
5. CHOOSING A TRUSTEE
A. Knowledge of your goals
B. Experience as a trustee
C. Trustworthiness
D. Understanding of beneficiary needs
E. Investment expertise
F. Affordability of fees
6. CHANGING YOUR TRUST

A. Divorce or remarriage
B. Death of beneficiary or trustee
C. Acquiring or disposing of property
D. Change in value of property
E. Changes in status or circumstances of your beneficiaries
F. Increase (or decrease) in your net worth

7. OTHER ESTATE PLANNING DOCUMENTS
A. Will
B. Living will
C. Durable power of attorney
D. Health care power of attorney
E. Marital trust
F. Minor trust  


This page provides general information. Laws develop over time and differ from state to
state. This pamphlet does not provide legal advice about specific legal problems. Let us
advise you about your particular situation.
ESTATE PLANNING WITH A LIVING TRUST
"Making the world
a better place, one
case at a time"
PHILLIPS,     
KRANTZ &                Tel (212)580-6500   
ASSOCIATES, LLP       offices in Manhattan, Brooklyn, New Jersey