WHAT IS A LIVING TRUST? -- A living trust is
a contractual arrangement, called a "trust agreement",
in which a property owner, called a "trustor(s), grantor(s)
or settlor(s), transfers the property's legal title to a "trustee(s)"
to currently manage the benefit of a beneficiary--as opposed to
trust creation and after death management under the trustor's will,
called a "testamentary trust".
HOW IS THE TRUST ESTATE COLLECTED? -- The trustor
must transfer the legal title to the property to be added to the
trust into the name of the current trustee (and that trustee's legal
successors) so it is controlled by the trust.
CAN THE TRUSTEE-MANAGERS AND THE BENEFICIARIES
BE THE SAME AS THE PROPERTY OWNERS? -- Yes! This is the most common
type of living trust called a self-declaration of trust.
AFTER THE PROPERTY IS PLACED IN TRUST, DOES THE
TRUSTOR STILL OWN THE TRUST PROPERTY AND CAN THE TRUSTOR ALTER,
AMEND AND REVOKE THE TRUST? -- Yes, the Trustor continues to own
the property in the trust and has the same power over the trust
property as before the trustor set up the trust--this is called
a revocable living trust.
AFTER THE TRUSTOR AS TRUSTEE DIES, WHO HANDLES
THE TRUST? -- The trust is administered by a successor trustee who
is named in the trust agreement to take over.
AFTER THE TRUSTOR DIES, HOW DOES THE TRUST PROPERTY
GET DISTRIBUTED TO THE BENEFICIARIES? -- The successor trustee settles
the trust estate and then pays the trust over to the beneficiaries
named in the trust agreement.
WHY DO PEOPLE WANT TO SET UP A LIVING TRUST?
-- A living trust is usually set up for at least one or more of
the following reasons:
a. Effective management--The trustor(s) has a larger estate and
is looking for a more effective vehicle to manage it;
b. Organization and Location of assets--Setting up the trust requires
the trustor to examine all of the trustor's property and title and
administer them within the trust estate which makes it easier for
the trustor and successor trustee management;
c. Probate court avoidance--Trust property is not subject to the
trustor's last will and testament, thus does not have to go through
the court probate process to save time and reduce administration
d. Confidentiality--Unlike a will offered for probate, because there
is no court administration a trust does not have to be filed with
the court and thereafter become a public record.
e. Continued property management for a minor or legally incapacitated
adult--If the trustor has any minor or legally incapacitated adult
beneficiary, the trust can manage the trust property for that beneficiary.
f. Estate tax savings--For husband and wife trustors who have an
estate valued over the estate exemption amount ($1 million for 2002
& 2003 and 1.5 million for 2004 & 2005 per person) then
a so-called A/B trust can be set up to avoid estate taxes on 2 million
(for 2002 & 2003 and 3 million for 2004 & 2005).
WHEN AM I A CANDIDATE FOR A LIVING TRUST? --
Any time your estate is not a small estate and could otherwise be
benefited by any
of the items mentioned in #7 above.
WHAT IS THE DISADVANTAGE OF A LIVING TRUST?
-- For smaller estates a living trust may not be as advantageous
because the cost, complexity and and the ongoing administration
may not be economical.
WILL A SELF DECLARATION LIVING TRUST AFFECT
THE TRUSTOR'S INCOME TAXES -- No! As long as the trustor has full
ownership of all of the property in the trust (even if there is
a different trustee) the trust income is taxed the same way as it
would be out of trust and no special tax returns are needed.
HOW DOES THE A/B TRUST SAVE ON ESTATE TAXES?
-- Currently, each person may make gifts during life and/or at death
not exceeding $1 million (for 2002 & 2003) and 1.5 million for
(2004 & 2005) and pay no estate tax. For married trustors establishing
a living trust, this means that combined they may pass 2 million
(for 2002 & 2003) and 3 million for (2004 & 2005) without
paying estate tax. However, if for instance, in 2002 the first spouse
to die leaves all of his or her $1 million property to the surviving
spouse's $1 million property, then that deceased spouse has wasted
his or her $1 million estate tax exemption and when the surviving
spouse dies in 2003 with a $2 million taxable estate, the survivor
can shield only $1 million, thus the survivor's estate is exposed
to a $1 million estate tax liability. However, if the $1 million
belonging to the first spouse to die is placed in a so-called "B"
trust for the benefit of the surviving spouse, but in a form so
it will not be taxed in the surviving spouse's ("A" trust)
estate when he or she dies, then this tax can be avoided.
HOW DO I SET UP A TRUST? -- Contact a qualified
estate planning attorney in the state of your residence to make
a complete review of your family situation as well as your property
(including a listing of the current value and title designations
to those assets) to prepare a plan best suited to you.
CAN I SET UP A TRUST FOR THE SOLE PURPOSE OF
HOLDING TITLE TO MY ARIZONA PROPERTY WITHOUT AFFECTING THE PROPERTY
IN MY HOME? -- Yes! A simple real estate trust is available in Arizona
to hold title to avoid an ancillary Arizona probate. Contact Matthew
L. Howell, the Arizona Ancillary Probate Attorney. firstname.lastname@example.org