Estate Planning With Living Trusts




Don't confuse a "living trust" with a "living will" - the latter deals solely with your wishes not to be kept alive by extraordinary medical procedures. The "living trust" deals with the material assets of your estate, not with life support systems.

The concept of a "living trust" has existed for many years but only recently the newspapers, and, in some cases mail and T.V. ads, are advertising seminars by financial planners and lawyers touting them as a way of avoiding long delays in estate distribution and of also avoiding huge expenses in probate costs. I would advise you to be careful of the "quick fix, one trust fits all situation," salesman. "Living trusts," in the right cases, have the possibility of saving your beneficiaries some administration expenses, of quickening the distribution of assets on your death, and of avoiding some intra-family disputes. In the wrong cases however, the absence of the checks and balances of the probate system may lead to a distribution of your assets to the wrong beneficiaries. Even worse, any beneficiaries "cheated" would find recourse to the courts very costly and not as efficient as when part of a probate proceeding.

A common error is the assumption that "living trusts" save taxes or are effective in avoiding the use of assets to pay for medical bills. The type of trust commonly called a "living trust" has no benefits for these two purposes since they are revocable. Other types of planning devices are necessary to accomplish those goals.

What is a "living" trust? It is actually a variation of an age old concept where one individual hands over ownership of assets to another person or corporation, not for the benefit of the new owner, but "in trust" for the benefit of a third party. Lets use a very simple example. As I get older I get it in my mind that if I were to meet die I would want my son, on my death, to have immediate access to my invaluable bicycle. Having heard the horror stories of "probate" delays I wouldn't want him to have to wait until my will is probated, so I come up with a plan. I write up a document which I call a "trust agreement" in which I give my son ownership of the bicycle, but not outright. I tell him it is intrusted to him under the following conditions. First, during my life I will keep it in my possession and can use it whenever I want. Second, that if I want ownership of the bike back, he has to give it back to me. Thirdly, that if I don't take it back before I die, he is the owner immediately on my death. Now, if all goes according to plan this "living trust" would give me the best of all worlds. I would be able to keep and use my bike just as if I owned it, and if I wanted ownership back, my son would have to comply with that request. If I died without taking it back, he would be the owner on my death and could take it immediately to own and use. If I didn't set up the trust, legally my son would have to wait until my will was probated to "officially" own it...and, who knows, maybe my daughter would fight against probating my will, saying I wasn't in my right mind when I willed my bike to my son!

Of course, things get more complicated when we put other assets into the "trust" but the concept is the same. I, as the creator of the trust, can put just about all my assets into it, and if my What is a "living" trust? It is actually a variation of an age old concept where one individual hands over ownership of assets to another person or corporation, not for the benefit of the new owner, but "in trust" for the benefit of a third party. Lets use a very simple example. As I get older I get it in my mind that if I were to meet die I would want my son, on my death, to have immediate access to my invaluable bicycle. Having heard the horror stories of "probate" delays I wouldn't want him to have to wait until my will is probated, so I come up with a plan. I write up a document which I call a "trust agreement" in which I give my son ownership of the bicycle, but not outright. I tell him it is intrusted to him under the following conditions. First, during my life I will keep it in my possession and can use it whenever I want. Second, that if I want ownership of the bike back, he has to give it back to me. Thirdly, that if I don't take it back before I die, he is the owner immediately on my death. Now, if all goes according to plan this "living trust" would give me the best of all worlds. I would be able to keep and use my bike just as if I owned it, and if I wanted ownership back, my son would have to comply with that request. If I died without taking it back, he would be the owner on my death and could take it immediately to own and use. If I didn't set up the trust, legally my son would have to wait until my will was probated to "officially" own it...and, who knows, maybe my daughter would fight against probating my will, saying I wasn't in my right mind when I willed my bike to my son! quickly to those I want it to go to.

When the living trust works flawlessly it can provide advantages. It can shorten the time and lessen the expense it will take for your beneficiaries to receive the assets you want them to have on your death. How much time saved will depend on how complicated your "probate" estate will be. If you have a close knit family, all local, and all friendly, and all in agreement that you were sane when you signed the will, estate administration goes rather quickly, and doesn't cost all that much. On the other hand, if you have some difficult-to-find heirs, or if your heirs are pre-disposed to fight over your assets, then quite a bit of time and money will be saved by using the "living trust."

Of course, if the probate process is so bad, why isn't it eliminated? Well, because in some cases it makes sure that your assets do pass on to those who you want them to. The Surrogate Court judge, in theory, is watching over the shoulder of those handling your estate, to make sure they abide by your wishes. It is this judicial "guardian angel" who is eliminated with a living trust. Thus, critical to any "living trust" is choosing a trustee you can trust implicitly. This column doesn't allow me to go into much more detail, but suffice it to say, get good, expert advice before you act.

Fred Schaeffer is an attorney and Pleasant Valley resident. Please e-mail him at FredinHV@aol.com if you have any questions or want to make an appointment to meet with him or call 914-454-1190.