Brief history
Living trusts were first used in 16th century England. Kings wanting to limit land ownership oversaw distribution of property when a landowner died (a form of probate). To avoid disclosure of their land holdings, people set up Trusts with the Church to bypass the King. Landowners deeded property to their Church, in exchange for the promise that the Church would grant the land back to their heirs when the landowner died.
Today, living trusts are commonly used to hold assets from young beneficiaries, allow assets to be used by some people before being distributed to other beneficiares and avoid court oversight in the transition of an estate.
Most standard living trusts and wills use similar language, making it easier for amendments by someone other than your document prepare and court interpretation of documents clearer.
Benefits of a living trust
Any assets in the living trust can be used to achieve a variety of estate planning goals. Controlling Distributions. Young beneficiaries may make ill-advised decisions when receiving lump sums of money from life insurance or proceeds from the sale of a house. A living trust can hold money until a predetermined age or make partial distributions as beneficiaries reach certain ages. Early distributions for reasonable education, health, maintenance and support requests can be approved by the Successor Trustees you appoint.- Example: A beneficiary could receive a early partial distribution for the downpayment on a home if the active Successor Trustee(s) feels the trust's creators would approve the early distribution should the beneficiary show fiscal responsibility.
Common living trust questions
- Recently acquired assets are in the living trust's name
- Beneficiary, successor trustee and powers of attorney clauses still accomplish your goals.
To work, assets must be in your living trust
Your trust can only control assets in its possession. Your goal is to transfer appropriate assets into your living trust while you are living.
You maintain control of assets in your living trust.
Assets typically transferred to a trust: Property, bank accounts, vehicles and non-titled assets such as furniture, art, jewelry, etc.
Assets not in the trust but naming the trust as a beneficiary: Life insurance, annuities
Assets kept away from the trust: Retirement accounts, such as IRA's and 401k's. Consult your financial advisor.
Learn more about transferring assets to a living trust.
Types of living trusts
Living trusts are just one type of trust, though living trusts come in several different forms:-
Revocable A Trust - A living trust that can be pictured as a single box holding the assets of usually one or two people. If there are multiple trustors, an A trust doesn't maximize estate tax exemptions.
Bypass/A-Disclaimer/Springing Credit Shelter Trust - A trust that starts as one trust (an A Trust) but within 9 months of the first spouse passing can be split into two trusts (an A/B or Survivor/Disclaimer) so each spouse can claim a federal estate tax exemption.
A/B Trust - Married couples use ths type of living trust in which two trusts (Trust A and Trust B) are created when the first spouse passes. Dividing the estate allows each spouse to avoid federal estate taxes. Otherwise, the surviving spouse takes ownership of all assets and has only his/her exemption when he/she passes.
