A Living Trust for Avoiding Probate and More

Probate is a legal process of settling the financial affairs of someone who dies. It can be a time-consuming and costly process. Since it addresses property held solely in the name of the deceased that doesn't pass to someone automatically, you can avoid probate by having a trust - a living trust - own all your property. But setting up a living trust can accomplish other purposes too.

A living trust - like all trusts - has grantor, a trustee, and a beneficiary. The grantor funds the trust by re-titling or assigning his assets to the trust's name.

The trustee - who can be the grantor, also, or in conjunction with another person - runs the trust according to the trust's documents. They say how funds are to be handled during the grantor's life time and what happens to assets remaining in the trust when he (or she) dies. Of course, the trust documents allow for how beneficiaries are eventually served.

But beyond bypassing the probate process, a living trust can help you by:

*Consolidating all your assets:

So instead of having your assets in various banks and brokerage accounts, you can gather them all under the trust. This can often ease financial decisions and save money by eliminating duplicate administrative fees.

*Provide for continued financial management:

As you age, you may find it difficult to handle your financial matters. With the help of another trustee, you can hand over your financial decision-making to someone else to manage the trust finances for your benefit - as put forth in the trust documents.

*Maintain privacy:

Having your property in a trust allows you and your beneficiaries the privacy that trusts afford in matters of ownership and distributions. A will - as part of the probate process - is by law open to anyone who wants to see it.

Since a living trust is a revocable trust, you, as the grantor, are ultimately in control of all the trust's assets since you can change or terminate the trust at will. This control keeps the trust assets and their earnings effectively under you for both income and estate tax purposes.

*A Key Point: Your living Trust is considered your property for taxation purposes:

A living trust is a revocable trust. That means you can dissolve it and take back your property into your own name. Whether or not you do is immaterial. But because of this 'control', the IRS deems it essentially your property.

As a result your living trust property is a part of your property for tax purposes. As trustee you're liable for paying yearly taxes on all taxable gains and earnings of your living trust property. In fact you can account for the income right on your personal 1040 tax form; you needn't use a trust form.

Your living trust property is also subject to your estate taxation when you die. So you don't save on estate taxes by putting property in your living trust. That's not its purpose.

The value of your trust assets will also be included in your estate when you die since you have ultimate control of them until your death. This estate value is subject to your federal and state estate taxes.

So, setting up a living trust offers you no tax savings - just the conveniences of privacy and a more unified financial management of your assets. And, of course, it allows the avoidance of probate for those assets you put into your living trust.


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Shane Flait helps you with your financial legal, tax, and retirement goals.
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