Living Trusts

Over the last two decades, with increased education and exposure, the popularity of Living Trusts has skyrocketed. No longer a tool just for the rich, Living Trusts are one of the most common estate planning tools in use today. This legal arrangement, drafted by an estate attorney, creates a separate entity called a Living Trust. (Also known as Inter Vivos Trusts). A Living Trust is called that simply because it is created and funded while you are alive, as opposed to a testamentary trust created after death.

The Parties Involved

The Living Trust document itself names three different parties. The individual (or couple) that establishes the Trust is named the Grantor. The Trustee is the person named by the Trust as the controller of the Trusts assets (and in most cases, we suggest the Trustees be the same people as the Grantors). And last, the Beneficiaries are the heirs that will benefit from the Trust once the Grantors have passed away.

Do I need a Living Trust?

Before going any further, deciding whether you need a Living Trust involves asking yourself the following questions.

  1. Do you want to avoid probate?
  2. Do you wish to avoid conservatorship?
  3. Do you need to provide protection of a handicapped child or disabled relative?
  4. Do you plan to leave an inheritance to children from a prior marriage?

If you answered yes to any of these questions, a Living Trust may be a wise decision for you.

Isn’t my Will enough?

A Will may not be enough because it does not address the management of your assets while you are alive. Even if you have a Will, it may be necessary to have a court appointed guardian manage your assets and make personal care decisions for you if you are incapacitated. Additionally, although you state your intent for disposition in your Will, it is necessary to probate your Will to distribute your property. Assets owned by an individual must be probated even if the Will provides for a trust to be set up after death (Trusts under will).

Avoiding Probate

Living Trusts avoid probate since they are completely private. Because a trust is recognized as a separate legal entity, a Trustee can make distributions to named beneficiaries without any involvement from the courts or attorneys. The courts maintain no control over the Trusts’ assets, and do not tie up the assets in a lengthy, and costly, probate process. The Trustee simply distributes assets to named heirs, but only if those assets have actually been placed inside the Trust.

What is Probate?

Probate is a legal process for distribution of a person’s assets when they die. The process ensures that a decedent’s debts are paid and property is distributed according to their Will or, if there is no Will, pursuant to statutory provisions. The process requires the appointment of a personal representative or an executor to collect assets, pay any debts, file necessary tax returns, and make the ultimate distribution to beneficiaries. The probate process can take anywhere from four months to years to complete.

What are the downsides to Probate?

  1. Fees. Administration fees for probate can be costly. Expenses include personal representative fees, court and bonding costs, and legal fees for the attorney who oversees the probate administration. State law permits attorneys to be paid a percentage of the estate value in addition to hourly fees unless agreed otherwise before services are rendered.
  2. Inconvenience. The probate process- can sometimes take two years or more. During this time, the personal representative may be restricted from distributing assets without the court’s approval.
  3. Lack of Privacy. By necessity, probate administration is done through the local probate court. Much of the information presented to the court to facilitate the process is available for public inspection. Anyone, including your nosy neighbor, may be able to get a general idea of the value of your estate and find out specifically who your beneficiaries are and what they will receive. The process also provides a means for contesting the validity of your Will and the dispositions it contains.

Everything I own is in joint ownership. Doesn’t this avoid Probate?

Joint ownership can avoid probate on the first death because, when one joint owner dies, ownership of the asset automatically transfers to the other joint owner without probate interference. However, at the time of the second death or if both joint owners die at the same time, the property must be probated before it can be distributed. So, joint ownership only postpones probate, it does not avoid it.

There are also a number of risks involved with joint ownership. When you name someone as a joint owner with rights of survivorship, that person may be entitled to the property just as much as you are. You should be aware that a joint owner could deplete an account or expose an asset to his or her debt, particularly when joint ownership is established with someone other than your spouse. A joint account owner’s creditors may attempt to levy upon part or all of the joint account.

Additionally, selling or refinancing a jointly owned asset may require both owners’ signatures. Although this provides some protection from mismanagement, it may also necessitate the appointment of a guardian to sign for an incapacitated owner.

How does a Living Trust avoid Probate?

Both probate and guardianship may be required when property is owned in an individual’s name. When you create a Living Trust, all of your assets are transferred from your individual name to a trustee’s name, either you or someone you appoint. The result is that, for all legal purposes, the trustee is considered the owner of those assets. However, for income tax purposes, all trust assets are considered to be owned by you as the grantor. If you are your own trustee, you will continue to use your social security number and Form 1040 for trust assets and income without inconvenience.

Funding your Living Trust

Once established, almost anything can be placed in a trust: bank accounts, stocks, bonds, real estate, life insurance, and personal property. In funding the trust, you simply change the name or title on your assets to the name of your Trust. Many people worry about losing control of the assets; however, that is not the case with a carefully constructed Living Trust.

Will I lose control of my property?

As long as you are the acting trustee of your trust, you can do everything that you could previously, including buying and selling property and making additions to the trust. A Living Trust is revocable, which means that you may make changes to the trust document or even cancel your trust entirely at any time. If it becomes necessary or desirable for a successor trustee to take control of the trust, it will be the person, trust company, or co- trustee that you designated.

The Living Trusts are There for You

Because the Trust is essentially controlled by one individual (the Trustee(s)), that person can carry out your wishes when you’re not able to. For instance, if you have children from a previous marriage and wish to leave them an inheritance, specific instructions to the Trustee will ensure that they receive what you had requested. If you become incapacitated or unable to care for yourself anymore, the Trust can still function and make distributions as needed. The Trustee has a fiduciary responsibility to see that your requests are fulfilled exactly. He or she can provide care and protection for disabled relatives or handicapped children in accordance with your wishes.

What is a successor trustee?

The successor trustee, or co-trustees, are the persons whom you have named in the trust agreement to replace you as trustee if you are unable or unwilling to continue to serve as trustee. If incapacity is a temporary situation, you can resume control after your recovery. At your death, the named successor trustee, automatically and without interference by the probate court, takes over to pay your debts and distribute your property according to your wishes as expressed in the trust agreement. The successor trustee can be your spouse, adult children, other relatives, trusted friends or a corporate trust company.

Should I have an attorney prepare my trust?

You should consult with an attorney who is experienced in drafting Living Trusts and estate planning. An attorney can provide the necessary guidance and assistance to ensure that legal documents are prepared properly for your particular situation.

Are other documents needed?

Living Trusts are often confused with Living Wills, Powers of Attorney, and Health Care Powers of Attorney. Most clients have these separate documents prepared at the same time their Living Trust is prepared. These documents generally provide for personal care and management of assets that may not be titled to a Living Trust. A simple “Pour Over Will” also replaces any prior Will and provides for any assets not in a trust to be conveyed to the trust for uniform distribution.


Living Trusts are easy to start up and require little on-going maintenance. They afford an extra measure of protection against loss of control, and ensure that your assets remain out of the public record even after your death. If you have questions about living trusts, feel free to reach out to Apex Financial Advisors.

The information in this article is not intended as tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax and/or legal advice regarding your individual situation from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security.