1/30/2018 Tips for When to Employ Living Trusts | Investopedia

Tips for When to Employ Living Trusts

By Mark P. Cussen, CFP®, CMFC, AFC | March 25, 2016 — 7:00 AM EDT SHARE

Many financial planners encourage clients to create revocable living trusts to ensure that their assets
are distributed in the exact manner that they desire without the bother and expense of probate
court. These trusts can also give clients a measure of protection from creditors and lawsuits and
provide other ancillary benefits that vary by state and circumstance.

But trusts can be complicated instruments, and grantors and trustees must understand the rules
that govern them in order to function e ectively.

Here are some of the more complicated issues that grantors and trustees must deal with when a
trust is used. (For related reading, see: What's a Trust? and Avoiding 4 Common Causes of Family
Estate Fights.)

HOT DEFINITIONS
Funding a Trust
Once a trust has been created, the next step is usually to fund the trust. This is done by re-titling all Wealth Management
of the assets that the grantor wishes to place into the trust in the name of the trust. For some assets,
Balance Sheet
such as financial accounts, this can be a simple matter of filling out new account paperwork and
submitting them along with a copy of the trust (or at least its declarations page) to the custodian Profit Margin
along with a transfer form. Economies of Scale
Cash Flow
But re-titling tangible assets such as a house or vehicle can be more involved and may incur a tax on Equity
the transfer that can be substantial in some cases. There are also some assets, such as IRAs and
qualified plans, that cannot be titled in the name of a trust. A trust can be named as the beneficiary
for these accounts, but the grantor should thoroughly explore the tax and legal ramifications that
come with this election.

Divorce Protection
Property that was acquired during a marriage is generally considered common or community
property in a divorce. But property that was inherited by one spouse and placed inside a revocable
living trust will generally be exempted from this division, provided that the assets in the trust were
not commingled with other marital assets.

This can be a valuable tool for spouses who don’t wish to sign prenuptial agreements or who are
expected to inherit substantial property. Most courts will view assets that are segregated in a
revocable living trust as belonging solely to the grantor or trustee. (For related reading, see: Making
Trading Center
Spousal IRA Contributions.)

Identity The Protection

Identity the has become a growing problem in America and elsewhere as cyber thieves gather
information online from potential victims and attempt to use this data to steal from them. This has
been an e ective form of crime because Social Security numbers are used for so many things today,
from financial accounts to credit cards and other items.

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Revocable living trusts can provide a measure of protection in this area because they usually have Trade Futures with TradeStation. Now
their own tax ID numbers, even if the trust is designed to function as a pass-through entity. This $1.50/contract/side. No so ware fees. Start trading
number is generally used much less o en, and beneficiaries who become the victims of ID the may Get Essential Portfolios. An automated way to inve
be able to draw from the assets in the trust while they get their other problems sorted out. that's always working towards your goals.

Special Needs
This is an area where trusts can provide very valuable benefits as they can provide protection and
income for beneficiaries who are unable to care for themselves. One of the biggest advantages to
using this type of trust is that it will still allow the beneficiary to qualify for government benefits or
assistance regardless of the amount of money or assets that it holds. (For more, see: Special Trusts
for Special Needs.)

These trusts can also make provisions for an alternate caregiver if the primary party becomes unable NEW

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can make necessary Markets
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to care for both the Academy
beneficiary and the primary caregiver if the latter party also becomes incapacitated.
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Mobility
The laws that govern wills and testamentary trust are always based upon the laws of the locality
where those documents are domiciled. This can result in taxes being assessed on the trust or estate
property by that locale or di iculty in moving the trust or estate to another jurisdiction. But these
problems can be easily avoided with a revocable living trust, because the local courts are not
involved in their existence. This can make estate planning and settlement much easier for heirs and
executors who need to move around in order to function. (For related reading, see: 7 Reasons to Own
Life Insurance in an Irrevocable Trust.)

Help for Older Clients

Grantors who are advanced in years and need to start delegating their responsibilities to their
children or heirs may be wise to name one or more of them as co-trustees, so that they can assist
with the technical aspects of managing the trust and still obey the grantor’s wishes. A fiduciary
known as a trust protector can also be appointed to oversee the actions of all of the trustees to make
certain that they are following the grantor’s wishes.

The Bottom Line

Revocable living trusts have many uses and can be employed to accomplish estate planning
objectives that are not possible with a will. The instances listed above are just some of the cases
where using these instruments can prove advantageous and provide for grantors of all income
classes. (For related reading, see: Estate Planning: 16 Things to Do Before You Die.)

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