Living Trusts - Why and When?

The Living Trust has become almost synonymous with Estate Planning. The Trust is a private contract between the person or persons creating it and the person or entity they have chosen as their Trustee. It is private since no court intervention or formal legal entity is involved in authorizing, creating or overseeing its operation. It is "Living" since the Trust is created currently and given life by providing it an asset to own. Typically, the asset it owns is an initial funding of $20.00. By f unding the trust it is legally in existence and has "life". Once funded the trust can serve many family and estate tax planning needs since it is capable of receiving assets at anytime, whether during lifetime or at death at the direction of your Will, a nd the Trustee will hold, manage and distribute these assets based on the rules you have established in creating this private contract/trust.

There are many reasons why utilizing a Living Trust can fit into your family and estate planning needs. Many young families with minor children have life insurance policies which would create substantial cash should both parents pass away in a common disaster.

For families with a special needs child, it is often preferable that assets not be left outright to the child, but rather, they should be left to a trust for that child's benefit, to supplement any other financial resources that the child may be receiving. Similarly, in families where a child has a substance abuse problem the parents may want that child's inheritance to pass to their trust to be held for that child's benefit for some period of time.

One opportunity afforded by a Living Trust is that it can receive and own assets at anytime. While most families elect not to have assets (other than the initial $20.00) pass to the trust during their lifetimes, there are occasions where it is appropria te to fund the trust during your lifetime with virtually all of your assets, in an effort to avoid the assets having to pass through the Probate Court at the time of your death.

For people with substantial family assets (over $800,000 including the value of insurance policies) the Living Trust is used to help defer or eliminate the impact of the federal estate tax upon the death of one or both spouses. The very simple Living Trust that we would use for the young family is tailored to capture the various allowable tax benefits. These tax motivated trusts are commonly referred to as Credit Shelter Trusts, Qualified Terminal Interest Property Trusts (Q-Tip), A-B Trusts or Charitable Remainder Trusts.

By creating the private Living Trust you afford yourself maximum flexibility in controlling your family assets for the benefit of your heirs after you have passed away and where possible maximizing the available estate tax benefits.