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THE LIVING TRUST ALTERNATIVE TO PROBATE

With a living trust you can completely avoid probate when you die, if you become incapacitated and when minor children are involved.

WHAT IS A LIVING TRUST AND HOW DOES IT AVOID PROBATE?

HOW A LIVING TRUST WORKS

HOW A LIVING TRUST IS SET UP

ADVANTAGES TO YOU AND YOUR FAMILY

DOES A LIVING TRUST HAVE ANY DISADVANTAGES?

WHY AREN'T LIVING TRUSTS BETTER KNOWN?

WHAT IS A LIVING TRUST AND HOW DOES IT AVOID PROBATE?

A living trust is a legal document that allows you to transfer ownership of your titled property (home, other real estate, car, checking/saving accounts) and your personal property (clothes, furniture, jewelry) from your individual name to something called a "trust," which you control. Think of it as forming your own company, with you and your spouse as the only employees. You don't personally own your property anymore because everything is now owned by your company (your trust). But you, as the owner of your “company," still have complete control over it.

A living trust is a legal contract. It is controlled by "trust law" which is similar to contract law. By comparison, a will is not a contract and is controlled by probate law. Every state has both trust laws and probate laws. Probate law requires the court to be involved. Trust law allows your business to be handled privately, even though you are incapacitated or dead, without any need for court involvement.

A living trust that is valid in the state where it is set up must be recognized by every state. In an age where people frequently relocate and often own assets in other states, a living trust gives you far more protection and flexibility than does probate, which is handled on a state-by-state basis.

There are only two ways to avoid probate - own nothing in your own name or have a living trust. A living trust lets you own nothing in your name, yet have complete control over everything in your trust's name. Nothing changes except the names on the titles. Because it is a living trust, you continue to control everything just as you did before. This is not just a legal technicality. Adding your trust name on titles and beneficiary designations removes that property from probate law and places it under trust law. This is what keeps you and your family out of probate. Since you no longer own anything in your own name, and since your assets are no longer controlled by probate law, there is nothing to probate when you die or become incapacitated.

Living trusts are not new, and they are not tax shelters or gimmicks. They do not need to be complicated or expensive. And just about everyone - married or single, old or young - can benefit from a living trust, especially if you have children or own property. A living trust is particularly beneficial for single parents and unmarried persons.

If you want to make sure your loved ones (spouse, children, grandchildren, parents or trusted friends) will not have to deal with probate if something happens to you, then you should have a living trust. Just ask any experienced bank officer, stockbroker, attorney, financial planner, CPA or life insurance agent.

HOW A LIVING TRUST WORKS

A living trust contains three parts: the grantor, the trustee, and the beneficiary.

1. The Grantor

This is the person setting up the living trust - you. If you and your spouse are creating one trust together, you are the co-grantors of your trust. The grantor is also called the settlor, trustor, or creator. Legally, the grantor "owns" the trust and has the power to change or revoke the trust at any time.

2. The Trustee

You will name a trustee who will control and manage the assets in the trust. You can name yourself or anyone you want.

While you are living, you will probably want to be your own trustee so that you can continue to run your own affairs as long as you are able. If you are married, you and your spouse will probably be co-trustees. This way, either of you can act for the other (just like a joint checking account) and, if one of you becomes incapacitated or dies, the other instantly has control of all trust property, with no court involvement. Remember, with a living trust, neither of you owns the property. Your trust does, and you own your trust.

Perhaps you don't want to be your own trustee. You can name an institution, such as bank or trust company (also called a corporate trustee) to act as your trustee, or your can name another individual such as an adult family member or friend.

The Back-Up Trustee

You will also name someone you know and trust as your back-up trustee (also called "successor trustee") if you are a single trustee, or in case something happens to both you and your spouse. In order to carry out your instructions, your back-up trustee will need only a copy of your death certificate or letters from your personal physicians if you are incapacitated, a copy of your trust document, and identification to verify that he/she is the person you named to be the trustee in your place.

How Do You Know Your Back-Up Trustee Will Follow Your Instructions?

Under the law of trusts, trustees are fiduciaries, which means they have a legal duty to follow your trust instructions. Trustees must act at all times in a prudent (careful and conservative) manner for the benefit of the beneficiaries. Also, because a trust is a legal contract, a trustee is legally obligated to safeguard the trust assets and follow its instructions. This means that if your back-up trustee abuses his/her duties, then he/she could be held legally liable and removed as trustee.

Of course, trustee problems can be avoided by naming persons you trust absolutely. You can also name co-back-up trustees to act together, such as an adult son and daughter or an adult child and a corporate trustee. If you don't have any trustworthy family members or close friends, then naming a corporate trustee is a good choice.

Know also that a properly prepared living trust will provide checks and balances on back-ups, such as requiring your back-up trustee (when they start acting on your behalf) to keep your other back-ups informed of all financial transactions.

In summary, your acting trustee has very broad powers, but he or she always has a legal duty, under the law of trusts, to carry out your instructions.

3. The Beneficiary

Your beneficiaries in a living trust are the persons and/or organizations who will receive your trust property and personal effects when you die. Beneficiaries are usually family members and relatives, but you can leave your property to anyone or any organization you choose. You may wish to name a favorite charity, religious, educational or fraternal organization.

The Alternative Beneficiaries

You also need to name alternative beneficiaries in case your primary beneficiaries have died or are not in existence when you die.

What Happens If You Become Incapacitated

Your back-up trustee (or co-trustee) automatically handles your financial affairs for you. He or she can write checks, make deposits, apply for disability benefits, pay bills, sell property; anything necessary to keep your financial and personal affairs in order. No courts, attorneys or conservatorships are required and everything is done privately. You and your family are spared the entire frustrating, time consuming and expensive process of having to set up a probate conservatorship and get the court's approval to spend your own money.

Plus, you have peace of mind knowing that, if this should ever happen to you or your spouse, you will be taken care of by someone you have selected, someone you know and trust; not someone a court appoints to take care of you. If you recover, you simply start handling your affairs again and your back-up trustee returns to being your back-up. There is no complicated paperwork or procedure required to regain control.

What Happens When You Die

Your back-up trustee (or co-trustee) will act essentially as an executor would if you had a will, but does not have to report to the court. He or she pays your final bills (signing checks as the trustee for your trust) and then follows your instructions for distributing your assets to your beneficiaries. Your back-up trustee can even sell property, if that's what you wanted. Since all of your property is titled in the name of your trust, it's very easy for your back-up trustee to conduct business. The process is much quicker, less expensive and more private than probate. Your assets are not frozen and nothing is advertised, so no "heirs" are invited to make claims on your estate.

What Happens If You Have Minor Children

If you have minor children, you will need to set up a children's trust within your living trust to prevent the court from taking control of the inheritance. Here's why. At the deaths of both you and your spouse, your back-up trustee will distribute your property and dissolve your trust. If you have minor children, then your trust needs to specify that their inheritance goes immediately from your trust into one for your children. The children's trust "inherits" for your minor children so that they do not directly receive the inheritance in their own names. This is what keeps the court from taking control of the inheritance. As long as the inheritance stays in a trust, first in yours, then in one for your children, you will avoid extensive probate.

In your children's trust, you name a trustee to manage your children's inheritance and a guardian to raise them according to your written instructions. The trustee and guardian can be the same person or different people. The court must still approve the guardian, but this is only a minor formality when compared to a probate guardianship in which the court also controls the inheritance. The court cannot overrule your choice of trustee, who will use the assets in the trust to care for your children until each reaches the age(s) you specify. And with your handpicked trustee controlling the money, there may be no real incentive for an irresponsible relative to want custody of your children.

Unlike a children's trust in a will, a children's trust within a living trust will automatically go into effect at death of the parent(s) without probate. There will be no courts, attorneys or probate guardianships involved with your children's inheritance. And your trustee and guardian will have much more flexibility and will be able to respond more quickly to your children's changing needs than if a probate guardianship were involved. You can also use a "children's" trust within your living trust to leave an inheritance to your grandchildren or other family members.

HOW A LIVING TRUST IS SET UP

An attorney prepares your living trust based on your decisions about what you want to happen if you become incapacitated and when you die. You make the basic planning decisions, inventory your property, decide who you want to receive it when you die, name someone you trust to be responsible for its distribution, and someone to take care of you if you can no longer take care of yourself.

The attorney will make sure the living trust satisfies your state's legal requirements and will prepare it for you to sign. Trust documents are usually prepared from the attorney’s standardized trust format. Because living trusts are traditional and well established in estate planning, your attorney should not need to create something from scratch. In fact, most people only need one basic trust document to handle all their needs and property. This may sound pretty simple and it is, as long as you use an attorney who is experienced in preparing living trust estate plans and can make the necessary modifications to handle your family's situation. It is very important that your living trust be done properly.

After your attorney has prepared your living trust document and you have read and approved it, you sign the trust and have it notarized. You then put the trust name on the titles and account names for all of your titled property (real estate, checking and savings accounts, safe deposit box, investments, cars) and your beneficiary designations (insurance, IRA's, Keogh Plans, annuities). We'll explain this in a moment.

You Must Transfer All Property Into Your Trust Name

If you don't properly re-title your property and beneficiary designations into your trust name (also called "funding your trust"), then the assets are outside of the trust and could still be probated. Just listing your property in your living trust is not enough. The trust name must actually be on the titles and beneficiary designations. Failure to properly re-title your property will cause the trust to fail (either partially or totally). Remember, the only way to completely avoid probate is to put everything you own into your living trust.

With the exception of real estate deeds (usually prepared by your attorney), we strongly recommend that you handle the re-titling of your property yourself. This will save you money and make you familiar with the process. Your attorney should provide you with detailed written instructions for re-titling your assets and authorization forms for you to complete and give to the companies with whom you do business. There should be no cost, except a nominal fee for recording your deed or reissuing your car title.

Not all companies are familiar with living trusts. And a few resist changing their ways to handle living trusts. If, for example, your bank doesn't want to rent your safe deposit box in your trust name, then we recommend you move your business to a bank that will. When faced with the loss of your business, it's remarkable how many companies suddenly discover that they can accommodate your request after all. Your attorney should "go to bat for you" at no additional cost if you need help. You shouldn't have any problems, but if you do, stand your ground and don't let someone talk you into doing something different. Remember, this is your property and your family. Don't compromise and jeopardize the probate protection provided by your living trust.

Finally, be suspicious if anyone tells you that you only need to put one asset or a "token" cash amount (twenty-five dollars seems to be most common) into your living trust to fund it. Single asset or "token amount" funding may be appropriate with other kinds of trusts, but this is not what you should do with your living trust. The only way your trust can completely avoid probate is for you to put all of your property into it.

Putting Property Into Your Trust

Changing the names on titles is really simple to do, especially if you are working with an experienced living trust attorney who provides you with the instructions and initial forms needed to re-title your property.

Titled Property

Almost any kind of property can be held in your trust including property you own in other states. Typical trust property includes real estate (like your home) and other property with formal titles (checking and savings accounts, stocks, bonds, mutual funds, cars). Some assets, such as notes and mortgages payable to you, contracts for deed, leases, patents and copyrights, and partnership interests, can be assigned to your trust without actually re-writing them. Your attorney can also prepare assignment forms for you.

If you keep your investments with your broker in a "custodial" account (also called a "street name" or "trading" account), then the account is simply re-titled to your trust name. Any original certificates you have for your investments will be reissued in your trust name. Rather than taking actual possession of original stock certificates, you may have your banker or broker keep your stocks or bonds in a custodial account for you in the name of your trust. This is much faster and easier and, since most brokers and bankers are insured, you don't have to worry about the certificates being misplaced or destroyed.

Most other types of assets can easily be handled by you with detailed instructions from your attorney. We will briefly discuss some of the most common assets to introduce you to this process.

Insurance

Mortgage, Credit Life, Health

Mortgage and credit life insurance pays off your mortgage or consumer loan should you (the borrower) die. There is no need to do anything with this type of insurance as long as the proceeds go directly to your lender only. Health insurance covers you individually and does not need to be put into your trust.

Liability, Casualty

Liability policies, such as homeowners or automobile insurance should name your trust as an additional insured, so your policy covers you individually and as trustee of your trust.

Group, Employer Benefit

Life insurance that is a benefit through a group or your employer is usually a part of a master policy held by your employer, union, etc. If so, you can (and should) only change the beneficiary to your trust because you do not "own" the group policy.

Life Insurance

Make your trust the owner of your life insurance policies. This way, if you become incapacitated, your back-up trustee can borrow on the cash value of the policy (if needed) to help pay for your care. Name your trust as the primary beneficiary so the death proceeds are controlled by your trust plan when you die.

Beneficiary Designations

You should change all of your beneficiary designations (such as your life insurance policies) to the name of your trust, even though death proceeds are generally paid directly to the beneficiary without probate. Here's why:

If your individual beneficiary is incapacitated when you die, the court will set up a probate conservatorship (or guardianship in the case of a minor child) on his or her behalf and control the proceeds, even if you have a living trust. But if your trust is listed as beneficiary, the death proceeds will be paid to your trust, and your back-up trustee will be able to use the funds to care for your beneficiary without court involvement.

Here's something else to consider. What if you and your beneficiary die at the same time, or your beneficiary dies before you? Unless you have named a contingent beneficiary, the probate court will have to determine who receives the proceeds. These problems can be avoided by naming your trust as the beneficiary so all of your property and death proceeds are distributed according to your trust instructions. This is an efficient way to totally control your estate plan through one document - your living trust.

Finally, many people name "my estate" as their beneficiary. "My estate" means pay the proceeds directly to the probate court. In other words, until the court decides, no one really knows who is legally entitled to participate in your estate. As we previously explained, the probate court will collect the proceeds and distribute them, together with any other probated property, after the probate process is finished. Your beneficiaries will have to wait much longer to receive whatever proceeds are left after the probate costs are paid.

A Special Note About Tax Deferred Investments

The most common tax deferred investments are IRA's (Individual Retirement Accounts), Keoghs, 401(k) plans and qualified annuities. You did not pay any income tax on the money when it was deposited. The taxes are deferred until you later withdraw the money, usually after you've retired when hopefully your income and tax bracket are lower. Tax deferred investments must be individually owned and identified by the owner's social security number. Making a living trust the owner of a tax-deferred plan will disqualify it (the trust does not qualify as an individual) causing the deferred income taxes to become due.

Connect your tax-deferred investments to your living trust by naming the trust as a beneficiary. If you are married, name your spouse individually as the primary beneficiary and make your trust the contingent (or secondary) beneficiary. This allows your spouse (if he or she survives you) the option of "rolling over" the proceeds into his or her IRA, further deferring payment of income taxes. If you both die at the same time or if your spouse does not survive you, then the death proceeds are paid to your trust and distributed according to your plan.

Single persons cannot use the roll-over option, so the living trust is the primary beneficiary. Proceeds paid to your trust at your death typically will pass through to your beneficiaries with the same options they would have had if you had named them as beneficiaries directly on the retirement account. There are some instances where the proceeds may be immediately taxable, but your trust may be eligible for income averaging, which spreads the income and tax liability over several years. On the contrary, having the death proceeds paid outside of your trust risks probate because the proceeds are not controlled by your trust instructions.

Be sure to discuss your particular situation with your attorney so that a balance is made between deferring income taxes and eliminating probate.

Real Estate

A quitclaim deed is required to put real estate into your trust. For example, let's say you signed your trust on January 1, 2005 and your home is jointly titled in the names of both you and your spouse, "John and Mary Doe, husband and wife." To change the title to your trust, you and your spouse will sign a "quitclaim deed to living trust" (also called a "correction deed" or "trust transfer deed"), changing the title to "John and Mary Doe, Trustees under trust dated January 1, 2005," and record the deed. That's all there is to it. If you later decide to sell your house, your real estate broker (or the title company) would have a trustee's deed prepared, which you would sign as "John and Mary Doe, Trustees under trust dated January 1, 2005."

You use a quitclaim deed because you are simply correcting the title; you are not selling the property. Remember, a living trust is revocable you can always change your mind about any property you put into it. This is very different from selling, which is an irrevocable action. In most states, this will not trigger a reevaluation of your property taxes or disturb your current mortgage in any way. Your attorney can tell you how to do this or can do it for you. Most living trust attorneys prepare the deed to change the title of your home (and any other real estate you own) when they are setting up your trust.

Some mortgage companies prefer titles in the name of an individual instead of a trust, especially when refinancing a piece of real estate. Many mortgages are re-sold to institutions in the secondary lending market that may not buy mortgages in the name of a trust. They are concerned that some trusts may have special restrictions preventing a trustee from mortgaging or selling the property. Also, some mortgage company employees may not be familiar with living trusts. Rather than trying to educate them, it may be easier for you to transfer the title back to your name temporarily (until the loan has been approved and closed) and then put it back in the name of your trust. However, you should know that federal regulations do allow residential lenders to refinance real estate that is titled in the living trust name. This is more convenient and less expensive.

Untitled Property

Of course, many types of property, such as jewelry, art, clothes, and home furnishings, do not have formal title documents. You do not have to inventory or list these to include them in your trust. The standard provisions of a properly prepared living trust will automatically "assign" all of your untitled property and personal belongings into your trust when you sign it.

Property Acquired Or Sold After You Sign Your Trust

It is easy to put property acquired after you sign your trust into your trust name. For titled property, just have the deed, title, policy or account set up in the name of your living trust when you acquire the property or open the account. For real estate have the seller deed the property directly to you as trustee of your trust. No special procedures are required, there is no need to change your trust documents, and you should not have any additional costs.

Untitled property works the same way. Suppose you buy a new sofa a year after signing your trust. Pay for it with a check drawn on an account titled in your trust name. The sofa automatically becomes a part of your trust; your cancelled check is proof of the purchase, and no special forms or lists are required. You don't have to do anything with your trust document.

If you sell or give away trust property, it is automatically removed from your trust because your trust doesn't own it any more. Nothing else has to be done.

Liabilities

Debts that you owe, such as credit cards, utilities, and mortgages, do not have to be re-titled in trust name, because you (and your trust) continue to be obligated to pay them.

ADVANTAGES TO YOU AND YOUR FAMILY

Avoid Probate Costs

Avoiding probate will save your estate money, no matter what size estate you have. With a living trust, your estate pays $0 to lawyers and $0 to the court upon your incapacity or death. That's money in the bank for you and your heirs, where it belongs.

You Keep Control

The trust document outlines your instructions for managing your assets and distributing them after your death or if you become incapacitated. So even when you cannot handle your own affairs, you will be sure they are handled the way you want. Until that happens, you can sell trust property, change your beneficiaries, make new investments, or even cancel the entire trust at any time, for any reason. You can do everything you did before you set up the trust.

Takes Less Time

Distribution of your property when you die can usually be done in just a few months (larger estates may take a little more time), instead of years. If you become incapacitated, then your back-up (or co-trustee) immediately takes control for you. There are no court delays or interferences.

Maintains Your Privacy

A living trust is a private document. If you become incapacitated, then it will remain a private family affair. When you die, no announcements have to be placed in the newspaper, therefore no one is invited to contest your estate plan. Furthermore, your private plans will not be part of any public court record. No information about your assets, beneficiaries or trustees will ever be made public. It is so private that disgruntled relatives or opportunity seekers who might have contested your will may not even know you have died.

A living trust can be contested, but not nearly as easily as a will. With a will, anyone can come forward and claim to have a right to part of your estate. But to contest a trust the left-out "heirs" must hire a lawyer and pay to file their own lawsuit. Unless the trustee is aware of the contest, he or she can go ahead and distribute trust assets to the beneficiaries. The individual who wants to claim a piece of your estate must then sue each beneficiary individually, which is expensive and time consuming (especially if they live in another state). This process will usually discourage even the greediest "would-be heir" from contesting your wishes. As a practical matter, a properly prepared living trust is almost impossible to successfully contest.

Minimize Emotional Stress

With the court restrictions removed, your family can continue its normal day-to-day routines. All of your affairs can be handled quickly and easily. If you are incapacitated, your family can look after your care privately. And when you die, they can grieve your passing privately and get on with their own lives without the frustration of prolonged court proceedings.

Inexpensive (And Easy) To Set Up

Expect the cost of setting up a living trust to be more than the cost of preparing a will. Remember, however, that the real cost of a will also includes the cost of probate. You will pay more initially, but in the long run a living trust will save you and your family money.

Most people should be able to get a living trust prepared for somewhere around $1,000. Costs can be higher or lower, depending on how complex your plan is, where you live, if you need additional tax planning, etc. Prices are getting more competitive as living trusts become more popular. Most living trust attorneys offer "flat rate" trust pricing so you can find out the cost (and what it includes) up front, before you start your trust. It pays to shop around. Be suspicious of attorneys who won't give you a cost estimate. Also remember that setting up a living trust is usually a one-time cost. Once it is set up, it requires very little maintenance, most of which you can easily do yourself for free.

You can complete your part of setting up your living trust in just a few hours. (See How do I Get Started?) After your initial attorney interview it should only take a couple of weeks for your attorney to prepare your living trust documents for you to review and approve. Allow another couple of weeks for your attorney to finalize your documents and for you to sign them.

No Special Government Forms Are Required

As long as one of the trust grantors is also an acting trustee, you continue to file the same personal income tax returns that you did before you set up your trust. The IRS does not require a separate income tax return for your living trust. And you do not need a separate tax identification number. You will continue to use your social security number.

Revocable

You can change or revoke your trust at any time. Trusts are very "user friendly" and easy to change. If, for example, you later decide to change your back-up trustee or disinherit one of your beneficiaries, then your attorney can prepare an amendment for you. You don't need to have your entire trust redone or change the trust titling on your property. If you ever wanted to revoke your trust (although we can't imagine why you would do this) then just transfer all of your property back into your individual name. That's all there is to it.

Pre-Nuptial Agreement

A living trust supplements, but does not replace, a pre-nuptial agreement. We strongly recommend you have a pre-nuptial agreement before you marry (or remarry), if you want to maintain your own separate property. A pre-nuptial agreement is no long just an “in case it doesn’t work out” document. Think of it as a legal blueprint for protecting your separate property when one of you dies or if you divorce; but it is not an estate plan, which is why you also need a living trust.

A living trust estate plan wraps around your pre-nuptial agreement and insures that your wishes for your separate property will be carried out if you become incapacitated or when you die. So, you need both documents – the pre-nuptial agreement to protect your legal and property rights under the laws of marriage and the living trust to provide you with estate planning protection (under the law of trusts) for your separate property at your death or should you become incapacitated.

These days, blended families are very common. If you have children from previous marriages, a living trust is an ideal way to make sure each child (and your new spouse) gets precisely what you intend for them to have. With a living trust, you can specify exactly how much you want each to inherit and prevent the possibility of unintentionally disinheriting your children (as you could with joint ownership). You also reduce the chances that your wishes will be contested (as often happens with a will).

It is not uncommon in a remarriage situation to have three living trusts. The spouses have a joint living trust for the property they have acquired during the marriage. Each spouse also has a separate living trust containing the property acquired before the marriage. Each spouse's separate trust usually distributes the property to the children (or other "blood relatives") from a previous marriage.

A Living Trust Can Reduce Estate Taxes

Married persons can use a living trust to reduce or eliminate estate taxes, which could result in saving many thousands of dollars for your family. (See Tax Planning Trusts.)

DOES A LIVING TRUST HAVE ANY DISADVANTAGES?

A living trust does not have any legal disadvantages. It is a very traditional, well proven estate planning tool that has been used successfully for centuries. In fact, nothing else offers any greater legal protection for you and your family than a living trust. However, some attorneys and other professionals are not proficient in working with living trusts (or they have probate in mind for you). So there may be some misinformation about living trusts. This usually occurs as a result of not understanding how a trust actually works. Let's examine some of the "disadvantages" and objections to living trusts and clear up some of that misinformation.

A Living Trust Costs More Than A Will

Not really. Initially a living trust costs more than a will, but the trust completely avoids probate. The true cost of a will includes the costs of probate, so when you fairly compare "apples with apples," a living trust is actually much less expensive than a will.

A Living Trust Is Complicated And Involves A Lot Of Paperwork

It does take a little time and effort on your part to re-title your assets and change your beneficiary designations. But since living trusts have become so popular, most businesses and government agencies have developed their own forms and procedures to efficiently handle re-titling. Using a living trust attorney can really streamline the process and provide back-up assistance if you need help. Once you set up your living trust and re-title your property into your trust name, you will continue to manage your affairs just as you did before.

A Living Trust Makes Refinancing Real Estate Difficult

As we explained earlier, lenders are often reluctant to refinance real estate titled in a living trust name. The easiest way to solve this problem is to temporarily deed the property back to yourself as an individual, complete the loan transaction, and then deed the property back to your trust. Just make sure you sign both deeds at the same time in case you become incapacitated or die before the refinancing is completed. Your back-up trustee can record the second deed putting your home back into your trust to keep it out of probate. Refinancing can be handled easily by using standardized trust deed forms prepared by your attorney or title company. The cost to prepare and record the deeds will be nominal.

And remember, federal regulations allow lenders to make residential loans directly to a living trust. Ask the mortgage company if they will make the loan to your trust before you start your loan application. It's a good idea to shop around to find a company who will lend directly to your trust.

Setting Up A Living Trust Requires A Bank To Be Involved

No. Trust law allows your living trust to be managed by you and your spouse acting as trustees with your selected family members as back-up trustees. So it's your choice whether or not to have a corporate trustee involved in your living trust. And since you (as trustee of your trust) cannot charge a fee to yourself (as grantor), you will not have any annual trustees fee or maintenance costs to pay when you choose to keep your trust a "family affair."

A Living Trust Doesn't Protect Me From Creditors And Lawsuits

The legal purpose of a living trust estate plan is to avoid probate and save estate taxes. A living trust doesn't protect you from creditors and lawsuits because it doesn't change your situation or responsibilities. This is not a disadvantage; in fact, it is no different from any other estate planning option.

No Time Limit On Creditor's Claims

The probate process restricts the length of time creditors have to file claims (and lawsuits such as a will contest) against your estate. Once this time period (also called a "statute of limitations") has passed, no new claims can be presented.

Most state laws provide for a living trust "claims period" if a public notice is given, similar to that required by probate. The public notice is usually optional and would be filed only if the trustee has reason to believe it is necessary. If the trustee does not give this notice, a claim or lawsuit could be filed against your beneficiaries after the trust assets have been distributed. The statute of limitations period vary from state to state depending upon the kind of property and the type of claim or lawsuit. As a practical matter, it is an extremely difficult and expensive process to sue the beneficiaries of a living trust, so this risk is very remote.

Bankruptcy

You may lose some of your bankruptcy protection if certain assets, such as your home, are in your living trust name. This depends upon what state you live in. Of course, you can take your home out of trust before you file the bankruptcy to restore full protection and eliminate this alleged trust disadvantage.

In Summary

The "disadvantages" we have just discussed should not affect your decision to set up a living trust estate plan. Most of them affect very few people. At worst, they may result in some minor inconvenience, which is far outweighed by the many advantages a living trust provides.

WHY AREN'T LIVING TRUSTS BETTER KNOWN?

If living trusts are so wonderful, why don't we hear as much about them as we do about wills?

First of all, because the legal profession has become very specialized, many attorneys don't know that much about living trusts. But wills are so common that practically every attorney feels he or she can prepare one. It's easier for them to draw up a standard will, especially when that's what most people ask for, than to take the extra time to learn about something that isn't their specialty. It also takes time to educate a client. So, like most of us, they stick with what they (and their clients) know.

Secondly, the legal profession has become very competitive and many attorneys don't want to risk losing a client. Rather than refer a client to another attorney who specializes in living trusts, they may not bring up the subject. So, unless you specifically ask about a living trust, your attorney may not take the initiative to tell you about something he or she doesn't do.

Third, as in all professions, there are a few who don't think of your best interests first. These attorneys earn a substantial part of their living from the probate system. They are more than happy to draft your will for a nominal charge while you are living, because they have an excellent chance of probating your will when you die. In fact, some may encourage you to name them as the attorney to represent your estate in probate. This is called "building a will file." Attorneys like this just wait for you to die (or to become incapacitated) so they can collect legal fees from your estate when it goes through probate.

And if you become incapacitated or leave minor children, they will probably represent you or your children in a probate conservatorship or guardianship, which can also be a very lucrative source of attorney fees. Remember, one of the biggest expenses of probate is attorney fees, which can quickly add up to many thousands of dollars. Not too many of these attorneys are anxious to offer living trusts, simply because living trusts avoid probate and would cut off a substantial source of future income for these attorneys.

But don't give up and try to do this yourself. You need a competent attorney, and there are many "top notch" estate-planning lawyers who know about living trusts, believe in them, and do them all the time. In fact, more and more people are finding out about living trusts and, in response to the public's growing awareness and demand for them, there are law firms like Austin Living Trust, who are very experienced in living trust estate planning and who feel a moral and ethical responsibility to educate their clients about living trusts as an alternative to probate. This is the kind of attorney you want to advise you and help you to set up yours. This is what the Austin Living Trust Law Firm has been doing for thousands of Missouri and Kansas clients for over 20 years.