Advantages of living trusts:
1. Living trusts do not require expensive professional administration.
2. Living trusts provide seamless access to financial resources.
3. Living trusts contain safeguards to protect young or incapable beneficiaries.
4. Living trusts are private.
5. Living trusts provide for the management of assets in the event of physical or mental incapacity.
6. Living trusts avoid the ancillary administration of property owned outside of Connecticut.
Living trusts avoid the professional fees incurred to administer an estate through legal probate. Because the legal title to trust assets is held and controlled by trustees, death does not cause them to become untitled probate assets. A trustee’s death merely necessitates the trustee’s replacement by the designated successor trustee named in the trust agreement. As the designated successor seamlessly steps into legal control, the trust’s beneficiaries are never cut off from its assets. The elimination of probate eradicates the need to employ professional assistance to navigate through it. While you are alive, you will administer the trust, and after you die, your designated successor, typically a family member or close friend, will step into your shoes. Because this does not require a judicial venue, beneficiaries can avoid the costly professional fees and expenses incurred when estates go into probate.
When you die, or if you become incapacitated, a living trust provides seamless access to financial resources. When a person dies owning assets titled in his or her individual name or capacity, they become untitled or probate assets. Legal probate is required to get them retitled and placed back into service. Attorneys who prepare living trust estate plans are aware of this. They also know that property held in trust is not held in an individual capacity. Rather, the legal title to trust property is held by a trustee or trustees in a fiduciary capacity. This distinction presents a significant estate planning opportunity because there is no loss of control over trust assets when a trustee dies. They remain titled to the trust and do not become probate assets. When a trustee dies, a named successor trustee steps in and assumes legal control of the trust. Because death does not affect the legal title to property held in trust, the prior placement of an estate into a living trust effectively guarantees its beneficiaries seamless access to its financial resources.
Living trusts contain the necessary safeguards to protect young or incapable beneficiaries.
You and your wife have a joint living trust. It was prepared 13 years ago. At its inception, you followed your attorney’s instructions and funded it with the appropriate property. You have one child, a seventeen-year-old daughter, who is the sole beneficiary of you and your wife’s combined estate. You have a home, which, after the mortgage, is worth $350,000. In addition, you and your wife each have $500,000 term life insurance policies. Your trust is the named beneficiary on both policies. You and your wife are co-trustees; if you both die, your brother, a prudent accountant, is the successor trustee of the trust. The trust provides that upon both of your deaths, the entire joint estate will be held in trust for your daughter. She is to receive one-third of the trust at age twenty-five, one-third at age thirty, and the remaining third on her thirty-fifth birthday, unless, for good cause in the discretion of your successor trustee, the distributions should be suspended (by way of example to insulate them from the claims of creditors, who may include a current or former spouse). Regardless of her age, the successor trustee is also authorized to disburse funds from the trust to provide for your daughter’s care, support, and maintenance and to provide for her education, and so on. You fly with your wife to Switzerland where, as you are enjoying a scenic mountain drive, a truck loses its brakes, collides into your car, and kills you both instantly. Your brother becomes the fiduciary of your living trust. He carves $250,000 out of the life insurance proceeds and sets it aside for your daughter’s college education. He invests the balance of the proceeds prudently in various investments. His decisions are never subject to intrusive oversight. He never charges your daughter for his time. He provides for her every need, no differently than if you were alive. Your daughter’s future well-being is secure.
You are single and a salesman at a car dealership. One day, you plan to own your own used car lot. You have a three-year-old daughter who lives with her mother. Although you are no longer together, your ex allows you ample and flexible visitation so your daughter may be a part of your life. You are committed to your daughter’s well-being and want to provide her with the necessary skills to become financially independent. When she is older, you plan to help with the cost of her college education. You meet with an attorney and explain that while you don’t have much, you want to leave what you have to your daughter. You ask him to prepare a basic will. He tells you that you could leave your property in a basic will, but he points out that your estate is likely to grow, and under state law, it must be turned over to your daughter, outright, on her reaching the age of majority. He advises you that, in addition to a basic will, he could either draft testamentary trust provisions and place them in the will or prepare a separate pour-over trust to govern the timing and/or circumstances under which distributions may be made. He explains the advantages and disadvantages of both options. He also advises you to take out a $500,000, 30-year term life insurance policy, which you can afford to do as the annual cost is low because you are fit and do not smoke. Rather than use a will, he then explains that it would be advantageous to place your estate plan into a living trust. If tragedy strikes, he explains that the proceeds of the $500,000 term policy could be directed into the trust, which would contain the necessary safeguards to protect the inheritance from the claims of creditors and ensure its proper use. In addition, if you die prematurely, your mother could be named as the successor trustee. You cannot think of a better way to safeguard your daughter’s future. You establish a living trust. You take out a $500,000 term life insurance policy and name your mother as a successor trustee. Six years later, during your morning run, you are killed by a drunk driver. The proceeds from the $500,000 policy are placed into your living trust. Your mother speaks to a financial planner, and the money is invested knowing that it will be needed for your daughter’s college education. Your daughter attends college, and her undergraduate tuition is fully covered by the trust.
Living trusts are private. Unlike wills, which become part of the public record, trust agreements generally remain private and do not have to be filed. When you die, the size of your estate, assets, liabilities, beneficiaries, and payment of distributions do not become public knowledge.
Living trusts can provide for the management of assets in the event of physical or mental incapacity. A significant advantage of a living trust is that it will also authorize your successor trustee to intervene and manage the trust for you if you become incapacitated and can no longer handle your own affairs. The trust document will specify the terms that must be met before a determination of incapacity is made, such as a certification from your personal physician. If you become incapacitated, your successor trustee will manage your finances and trust estate on your behalf. If, however, your estate plan is governed by a will, if you become incapacitated, in the absence of a controlling power of attorney, no one can step in to manage your affairs. If no power of attorney exists, or if the original document is lost or challenged, the financial assets will be frozen, just like when a person’s estate is governed by a will. In the absence of a pre-existing, legally controlling document, a fiduciary appointment by the probate court will be required to regain access to the assets.
Living trusts avoid ancillary administration of property owned outside Connecticut. If you die owning property in another state and your estate plan is governed by a will, the fiduciary of your estate will be required to open an ancillary estate in the out-of-state jurisdiction to obtain legal control over that property before it can be sold or transferred to its beneficiaries. The cost of this additional probate proceeding could be avoided by retitling the property into your living trust. If the property is transferred into your trust, when you die, your successor trustee will immediately gain legal control of the property.
Are living trusts revocable?
Estate plans created by living trusts and in wills are both revocable; that is either type of plan could be modified or changed by the person who created it during his or her lifetime.
Who are living trusts for? A living trust is for anyone who desires to transfer wealth with safeguards in place to preserve its value while ensuring that distributions are used for their intended purposes. It is also important to the person choosing this type of plan that beneficiaries always maintain legal access to trust assets, so that life may continue after death as before, without involving any strangers.
As living trusts contain necessary provisions to manage and safeguard distributions to minor beneficiaries, they are particularly appropriate for those who want to ensure the future well-being of their children. Moreover, because such estate plans can be funded with life insurance, as long as the person establishing the trust ensures that it is sufficiently funded when they die, the person’s actual net worth, when it is established, is not important.
Is a living trust worth the effort and expense?
Although the cost to establish a living trust is greater than that of a basic will, in view of the benefits received, a reasonably priced living trust is a good deal. Just like life insurance, a good estate plan may prove invaluable to ensure a family’s well-being in the event of death. Both investments fill critical gaps in the event of death.
A living trust provides the following important benefits:
- Seamless access to financial resources
- Management of estate plan property by family members
- Avoidance of professional administrative fees
- Administration of trust property without intrusive oversight
- Prevention of mandatory distributions to young and inexperienced beneficiaries
- Safeguarding of distributions by placing control in the hands of trusted and responsible adult fiduciaries
None of these benefits should be taken for granted. If your estate plan is not in a living trust, none of them may be provided.
The document offered above is for informational purposes only and not to provide legal advice. With respect to any specific issue or problem, you should contact an attorney for advice.