I asked the pros & cons of Living trust. Mr zero answered it but I need more info. can you help please/?

Answer 1

A trust is a legal document, which means that legal title to property is held by one or more trustees for the benefit of someone else. Thus the meaning of the word "beneficiary." Depending on the kind of trust involved, the trustee is often responsible for the maintenance and upkeep of that property for the ultimate beneficiary of the property.

There are many kinds of trusts; the most common is a "deed of trust." This is the mortgage instrument, commonly used in mortgage lending, whereby the homeowner borrows money from a lender, and deeds the house in trust to a person or institution selected by the lender. If the borrower pays the money in full, the trustee releases the trust; if the borrower becomes delinquent, the trustee exercises its powers to sell the property at a "trustee's" foreclosure sale.

A testamentary trust is established by an individual's Will, and comes into being on the death of that person. Many people will consider placing their property in trust on their death if, for example, their children are young, and they want to make sure that the children can continue to stay in the house under the supervision of a trustee and a guardian. In this example, the trust will generally end when the children reach a certain age, and that decision is made by you when you write your Will which creates the Trust. Under a testamentary trust, the terms of the trust must be spelled out to assure that the trustee fully understands his or her role.

As with every trust, the trustee has a fiduciary responsibility to the beneficiary, and cannot squander or steal the trust assets.

A revocable living trust is created while you are living. This is often called an "inter vivos" trust, which is a Latin term meaning "between the living." This trust is revocable, which means that the individual creating the trust (called the "grantor") has the right to change its terms or cancel (revoke) the trust at any time, for any reason, during his or her lifetime.

The primary reason that people establish a living trust is to avoid probate proceedings, which can be a time-consuming and costly process. Under state laws, the trustee -- and not the individual (the grantor) -- owns the property, and in general only property owned by the deceased individually is probated. Property held jointly will automatically pass to the surviving owner, without having to go through probate.

Much has been written about the problems and delays of the probate process. However, in recent years, legislation has been enacted in many states -- including the District of Columbia -- to modernize and speed up the process.

For many years, the secondary mortgage market did not accept mortgages where the borrower was an inter vivos revocable trust. However, several years ago, FannieMae announced that it will accept inter vivos revocable trusts as eligible borrowers for mortgages under certain conditions, including:

The trust must be established by a written document during the lifetime of the individual establishing the trust;
The trust must be one in which the individual establishing the trust has reserved to himself or herself the right to revoke the trust;
The trust document must name one or more trustees to hold legal title to, and manage the property that has been placed in trust; and
The trustee or trustees must have the power to obtain a mortgage on the property. This power must be spelled out in the legal document creating the trust.
There are other advantages to a living trust. For example, if you own property in more than one state, on your death, probate proceedings may need to take place in each state where property is located. These are usually referred to as "ancillary probate." Clearly, when property is held in a living trust, these ancillary proceedings may not be necessary.

Another advantage is privacy. Probate is a matter of public record, whereas living trusts are private. Some individuals may not want to disclose who their ultimate beneficiaries will be, and the living trust provides a modicum of privacy.

However, there are also pitfalls in the use of the living trust.

Although I have indicated that for ownership purposes, the trust -- and not the grantor -- is the legal title owner of the property, for tax purposes, the property in a trust remains the property of the grantor. Contrary to popular opinion, living trusts do not save estate taxes, and they do not save income taxes. No matter how many times this is said, some people either do not hear it or do not believe it. For income tax purposes, you – the grantor of the trust – still have to pay tax on income obtained from the property; for estate tax purposes, even though you have transferred assets to a revocable (living) trust, those assets remain – and are included – in your taxable estate.

There are also increased costs as a result of the creation of such a living trust. Lawyers will charge you a fee for creating the trust, and these fees can range from $750 to thousands of dollars. Furthermore, you will have to incur administrative and recording costs. The paperwork that the trust has to handle may be as great a burden as having to go through the probate proceedings.

There is one additional negative which people often forget. Just because you have transferred property to a living, revocable trust does not mean that those assets are protected as against creditors. If someone gets a judgment against you – for example in an automobile accident where the judgment is higher than your insurance coverage – the judgment creditor can attach all of your assets so as to satisfy the judgment, even those assets which have been transferred to a living trust.

More importantly, even if you set up a living trust, you must still have a Will. Most people own more than their house, and especially if there are children involved, or other assets, it is imperative to have a Will (referred to as a pour-over Will) to make clear your intentions as to how your property will be disposed of on your death. With a Will, even if there is a cumbersome probate proceeding, at least your intentions have been made known; without a Will, the intestacy laws determine who receives your assets.

Living trusts are an option to be considered. However, you should do a complete asset check to determine how serious your estate will be impacted by the probate proceedings. For example, other assets may already be probate proof, such as life insurance proceeds, IRAs, or other retirement benefits.

Everyone must consult his or her tax and financial advisors before taking any action that could be costly to you and to your heirs.

Once you have decided to go forward with the living trust, you should consult several attorneys who specialize in Estate planning. Compare their fees Lawyers do not always charge on an hourly basis; some bill on a product basis – so much for a Will, so much for a real estate settlement, and so much for an uncontested divorce.

Should you prepare the papers yourself? That certainly is a possibility, and there are a number of good “do it yourself” books on the subject of the Living Trust. It does not take a rocket scientist to prepare the Trust documents. However, there is always a risk that you may have missed a legal technicality, and as a result, your Trust may be declared invalid. (While I specifically avoid any endorsement, you will find a sample Living Trust on the Web at www.laweasy.com).

As the old saying goes, “you get what you pay for”!