A living trust is often the best way to avoid probate.
In previous articles in this series we discussed types of probate and probate avoidance tools. In this article we discuss the use of a living trust in more depth. Some of the benefits of a well-drafted living trust over other forms of probate avoidance are that it better controls what happens if a beneficiary predeceases the trustor, it controls when the beneficiaries receive the assets (thereby avoiding guardianship in the case of minor beneficiaries), and better protects those assets from the creditors of those beneficiaries.
Basically, a living trust avoids probate by retitling assets out of the name of a living person into the name of the trust. As the main purpose for probate is to transfer assets from a deceased person to that person’s beneficiaries, the living trust avoids probate because the assets are no longer titled to that person but to the trust.
A trust has three “positions”: The “trustor” (also known as a grantor or settlor), who is the person who creates the trust; the “trustee”, who is the person who manages the trust on behalf of the beneficiaries; and the “beneficiaries”, who are the people who get to enjoy or receive the assets in the trust.
In the case of a revocable living trust (which is usually what is referred to by the term “living trust”, in contrast to an “irrevocable” trust), the trustor is normally also the trustee and beneficiary during that person’s lifetime. That gives the trustor total control over the assets he or she places into the trust, so that he or she enjoys the same dominion and control over the assets as if they were still titled to him or her.
The trust should also list the person or persons who will take over management of the trust as “successor trustee” upon the trustor’s death or disability. In the event of disability the successor trustee will manage the trust for the benefit of the trustor, thereby eliminating the need for a guardianship of the property. In the event of the trustor’s death, the successor trustee will basically pay the trustor’s debts and then distribute the assets to the beneficiaries set forth in the trust. Therefore upon the trustor’s death the living trust becomes very much like a last will, except that no probate is required.
However, it is important to note that the living trust will work only as to those assets titled to it. Therefore it is essential that the trust be properly “funded” upon creation. Many trusts fail to avoid probate because they were never funded, some assets were missed in the initial funding, or the trustor forgets to title after-acquired assets to the trust. In that case a “pour over” last will, which is a necessary component to any living trust, will direct the assets into the trust, but only after probate or other estate administration.
Copyright 2012, The Law Office of Vincent J. Profaci, P.A., serving Altamonte Springs, Kissimmee, Lake Mary, Longwood (including Lake Brantley and Sweetwater), Maitland, Orlando, Sanford, and all of Central Florida in the areas of Wills and Living Trusts, Estate Planning, Asset Protection, Elder Law, Medicaid Planning, Probate, Real Estate, and Business Law and Litigation.