Nearly everyone has some idea of what a carefully written will can do to help ensure what happens to your property after your death comports with your wishes. For many people, a will and a few other legal documents, such as a healthcare directive and a durable power of attorney, may be enough to carry out their wishes and safeguard their property and the interests of their family or other heirs.
Far less familiar to most people is another legal creation, one which can help protect property even while its creator is still alive: a living trust, also known as a Revocable inter vivos (Latin for “among the living”) trust. While wills are simpler to create, living trusts can have additional benefits. But please note: even though a living trust has some additional advantages, having a living trust does not eliminate the need to have a will, to handle disposition of property that is neither covered by the trust nor passes automatically under other laws.
A living trust is created by a trust document, which sets up a separate legal entity (the trust) to hold some or all of an individual’s property. It also sets the terms for managing and using the trust, and names the person (the trustee) with the legal power to handle it, and the fiduciary duty to do so properly. The trust document also names beneficiaries of the trust.
The person creating the trust can, and frequently does, name himself or herself as the trustee. A properly drawn trust agreement will also contain provisions naming a replacement trustee if the original trustee becomes incapacitated, and a successor trustee, who will take over control of the trust after the death of the original trustee.
One basic advantage of a living trust is it allows the creator during his or her lifetime to keep control of assets set up later to pass to beneficiaries. It allows the creator to state who he or she wants to be cared for in the event of disability, who his or her caregiver should be and who will control the assets while he or she is disabled. What’s more, unlike property passing via a will, property passing through a trust avoids the often lengthy and expensive probate process, in which a court oversees the administration and distribution of estate assets.
The more complex or sizable an estate, the more burdensome the probate process is likely to be. Since, unlike many other states, Pennsylvania does not follow the Uniform Probate Code, which somewhat simplifies the probate process, a living trust can significantly make it simpler and cheaper to wrap up an estate in Pennsylvania.
Another advantage of a living trust for persons interested in keeping their financial arrangements as private as possible is that, unlike wills and other probate court records, the details of trust operations are closed to the public. Living trusts are also usually set up as revocable trusts, meaning that the trust creator retains control of the assets and the ability to make later changes in trust terms or beneficiaries.
It’s crucial to note a living trust does not take effect until specific assets have been transferred into the trust to fund it; this may require additional paperwork to complete formal transfer of those assets’ title. Also, by itself, a living trust may not reduce federal estate taxes (which start when an estate is worth over $5 million), although tax-reducing provisions can be added in more complex forms of living trusts.
If you would like to learn more about living trusts, please feel free to get in touch with our office.