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Do I Need A Living Trust?


Do I Need A Living Trust?

Much has been written about the use of a living trust as a means of reducing the cost of passing your assets to your heirs at death.  For most people, the primary motivation for creating a living trust is to avoid the probate process.  In general, any assets which are in a decedent’s individual name at death will be subject to the probate process.  Assets which are not individually owned at death, such as bank accounts, brokerage accounts or real estate which many times are owned by two or more individuals as joint tenants with rights of survivorship are not subject to the probate process.  Life insurance policies and retirement accounts which permit the owner to designate a beneficiary avoid probate as well as long as the named beneficiary is not the decedent’s estate.

Living trusts can be used as a vehicle to hold assets for the benefit of minor children until they reach a certain age, or even for their lifetimes, in the event of  the untimely death of both parents.  They can also hold assets for an individual with special needs.  What follows is a general discussion of several of the advantages of a living trust – see if it seems right for you.

Privacy. If assets are transferred to a living trust during an individual’s lifetime, those assets will be administered by the trustee free of probate court supervision during the individual’s lifetime.  Upon the individual’s death, the assets pass to the beneficiaries named in the trust free of probate court.  As these assets do not go through the probate process, the nature and extent of the decedent’s assets do not become a matter of public record as they would if owned individually by the decedent.

Expense.  For many, the most important consideration in using a living trust is to reduce the cost of passing assets to their survivors at death.  Savings can result through the use of a living trust to avoid probate.  This is because filing fees, attorney fees and appraisal costs are reduced and maybe even eliminated.  While the initial expense of creating and funding a living trust tend to be higher than the initial cost of creating and executing a will, this cost is usually more than offset by the savings realized in avoiding probate administration at death.

Asset Distribution.  Distributions from a trust to a decedent’s beneficiaries usually occur more quickly than do distributions under a will.  This is generally because no court orders must be obtained prior to distributing assets from a trust.

Out of State Assets.  Avoidance of probate becomes an even more important consideration when dealing with assets that are located in a state other than the state of an individual’s domicile at death. If out of state real estate is owned individually at death, a separate probate process will often be required in addition to the probate process in the decedent’s state of domicile causing estate expenses to increase.

Income Taxes.  Because an individual creating a living trust retains control over the assets transferred to the trust during his or her lifetime, the living trust is ignored for income tax purposes.  This means that during the individual’s lifetime the trust is not treated as a separate taxpaying entity and all of the income and expenses of the trust are reported directly on the individual’s income tax return.  Upon the individual’s death, the living trust ordinarily becomes irrevocable which causes the trust to become a separate taxpaying entity at that time.  

Do any of these advantages appear to resonate with you?  If so, it may be time to meet with your attorney to determine if a living trust is right for you.

Written by

Gregory C. Luke, ESQ.

Greg joined THOR in 2002 and is a member of the Wealth Management team. Before joining THOR, Greg spent 12 years in the private practice of law. While practicing law, Greg's main focus was business and estate planning, tax, charitable planning and estate administration.

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