A Living Trust This is the document which you will be preparing to avoid estate taxes and probate. It has possession of your property, and a system for caring for the property, both before and after your death. is a legal vehicle – just like a car. When you buy one you will want to know how to operate it.
A simplistic analogy of a living trust is "like a toy box in which you put all of your toys to safeguard them". The Trustees are the persons in charge of the toy box. If one Trustee dies another supervises the toy box. The toy box keeps the toys from getting lost. The toy box supervisor makes sure the toys are kept in good order and inventoried.
A living trust is much the same. When you are the Grantor This is the person that puts his/her property into the trust to avoid estate taxes and probate. you put all of your assets (toys) in the trust. Then the Trustees make sure the assets are maintained, and that the money and assets in the trust are available for the beneficiaries These are the people who will receive money from the trust. Beneficiaries can be the Grantors, Trustees, friends, family, or charities which the Grantor has decided to name as beneficiaries in the trust. to play with – all in accordance with the instructions in the trust documents.
As soon as you, the Grantor, put the assets into the Revocable Living Trust (the toy box), you become the primary trustee responsible for the toy box. When you die, become disabled or incompetent, someone else, whom you have designated in the trust will become the successor Trustee.
All Trustees need to know how to manage a living trust. This is important because the Trustees will be the persons responsible to make sure that there are enough toys left for the next generation of children to be happy.
People have various reasons for creating revocable living trusts. The most common are:
To Avoid probate This is a court procedure which is used to re-title property after someone dies. A probate action determines who has the title to what property after you die. Probate is very costly and is to be avoided if possible. Probate can be avoided by properly preparing a living trust. administration upon the death or in the event of lifetime disability
To obtain favorable estate The estate is all the property that you have in your possession at any point in time. This includes real, personal and intangible property. When you die this property will be taxed by the state with what are called estate taxes. You can avoid these taxes through the use of a living trust. tax consequences
To provide for the management of assets
To provide for the distribution of assets during the administration of the trust and at its termination
The terms of the trust instrument can help reduce or eliminate estate taxes. If probate avoidance is the goal, it can be accomplished by the transfer of assets to Trustee upon the creation of the trust. To avoid probate additional assets, acquired after the creation of the trust, should be placed in the trust by the grantor (the person funding the trust).
Both Trustee and Grantor will need to understand the process of transferring the assets, since, as noted above this is essential if probate is to be avoided. In effect, the Grantor of a trust is transferring property Property is defined in three ways: 1) real property, which is the land and buildings located on the land; 2) personal property, which is the property you have in your house such as the couches, beds, furniture and other items that you can see and touch; 3) intangible property, which is the property which cannot be see or held. This property is the stocks and bonds that you own, bank accounts, and insurance coverage., while he is capable of going so, rather than leaving the assets in his name to be cleared through a probate administration at his/her death. Under most state probate procedures, the living person can transfer his or her own property more easily that a personal representative can on that persons death. A living person has freedom to act with his own property. A personal representative is limited by a will (if any), by statute, by court procedures, and by the taxing authorities. The advantage of a trust is that the property transferred out of the name of the grantor before he dies and into a vehicle which will remain "alive" even after he/she dies, making the transfer of assets to his/her children easy. For a trust to work best, it must be funded. Toys must be placed in a toy box. These guidelines are designed to explain the transfer process and to assist the individual Trustee in administering the trust.