In a typical living trust arrangement the individual creating the trust (the Grantor) will also serve as the initial Trustee of the Trust during his life. The Grantor will specify that he is entitled to any income generated by the assets transferred to the trust, that he may receive principal from the trust to support himself and that he may amend or revoke the trust at any time. In a self-trusteed living trust, the trust is the alter-ego of the individual.

Protection of Heirs

In addition to reducing federal estate taxes, a living trust can also delay the distribution of assets to beneficiaries until the beneficiaries are old enough to manage the assets responsibly. With a simple will, an individual’s assets are distributed to his heirs upon his death. If an heir is a minor, his bequest will be held for his benefit by his guardian until he reaches the age of 18, at which time he will be entitled to use the assets in any manner he pleases.

Most individuals would not want their high school senior to have access to a large sum of money. Similarly, even older children might have proven themselves incapable of handling money responsibly due to general poor money management skills; a drug, alcohol, or gambling addiction; or mental illness.

The solution to both of these situations is to leave the money to a living trust where the funds can be spent on behalf of the heirs, but the heirs do not actually receive unfettered access to the funds until they reach a specified age (many people make equal distributions at the ages of 25, 30 and 35) or until the child has proven himself capable of handling the funds. The heirs will receive income as they need it for their health, support, maintenance and education, but they may only receive principal under the terms of the trust agreement which could be very generous or very restrictive, whatever the goal of the Grantor is.

Probate Avoidance, Non-Contestability, and Privacy.

A living trust which contains assets at the time of an individual’s death has three advantages over a will, although the importance of the advantages depends on the goals of the grantor.

  • First, the assets in the trust will avoid the probate process which should reduce attorney’s fees and expedite the estate settlement process.
  • Second, the validity of a trust is more difficult to challenge than the validity of a will.
  • Finally, information about assets owned by a living trust and the beneficiaries of the trust do not have to be filed anywhere (while a list of assets that pass by will and to whom they pass are filed as part of the probate process. These records are available to the public, sometimes online).

In short, even without estate taxes, there are still many reasons to incorporate a trust in an estate plan.