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April 2004
Index of all
past
Affiliate Corner columns
Living trusts can help give you immediate peace of mind.
by
Jack Sughrue, Allstate
Insurance
and Mike Juliano, Farmers Insurance
The majority of trusts are designed to ensure a smooth transfer of assets after you're gone, but one, a living trust, can help give you peace of mind while you're alive.
The allure of a living trust is its ability to change terms while you're alive. That's a feature not possible with many other trusts. Today, living trusts are used by people who appreciate the trustee's ability to execute important decisions in your absence, as long as you stipulate these decisions in the trust. This can be particularly useful should you become incapacitated.
Flexibility and control
A living trust has long been a staple of estate planners, providing those who establish one with a way to control how assets are distributed and a way to avoid probate on assets owned by the trust.
Like a will, a living trust is a legal document that stipulates how your assets should be distributed when you die. Unlike assets transferred in a will, assets in a living trust need not pass through probate, a process that is both public and, depending on your state and the value of your assets, can be costly. Securing the help of an estate planning attorney experienced in drawing up living trusts isn't inexpensive either, but it's often worth the price for people who want privacy and flexibility.
Is a living trust right for you?
With the help of your estate planning attorney and licensed financial professional, you can determine that answer. Living trusts can be revocable, meaning you can change the trust's terms at any time. Because of this ability of change terms and even take back ownership of assets from the trust, it may not enjoy the estate-tax-favored status of irrevocable trusts. If, with the help of an estate planning attorney, you believe you want more tax efficiencies, you can also establish an irrevocable living trust, but you cannot change the terms of or terminate the trust.
Additionally, certain assets such as retirement plan distributions and life insurance death benefits typically avoid probate with or without a living trust because these financial instruments usually have named beneficiaries. Be sure to discuss the terms of your retirement and life insurance plans with your licensed financial professional.
Those who appreciate living trusts typically cite their flexibility as the reason. People who own property in more than one state also may find living trusts effective, since property transferred to a trust bypasses probate while property outside a trust must be probated in each state, which may result in multiple probate proceedings.
To ensure that a living trust does its job, you must transfer ownership of any assets in question to the trust. Remember that assets in a revocable living trust are not protected from federal or state estate taxes. If you're interested in reducing estate taxes, a combination of irrevocable trusts and, when appropriate, life insurance, may help.
Most important, a living trust should not be the only document containing your final wishes. A document called a pourover acts as a safety net if you don't transfer all the assets you intended to the living trust. This document can stipulate that all assets not passed to the trust were intended for the trust, and then assets would pass to it after your death. These assets are subject to probate.
A living trust isn't for everyone. But with the help of your licensed life insurance professional and attorney, you can learn whether it is right for you.
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