Dudugjian & Maxey

There are many varieties and types of trusts available for particular purposes and circumstances, some of which require that you give up all interest in the trust. Here, however, we are referring to a trust under which you are a beneficiary.

This brief explanation of one type of trust is not intended to be legal advice in connection with any particular circumstance, but rather to assist you in deciding whether to seek the advice of a professional. A list of estate planning attorneys has been compiled by Mark J. Welch. You can visit his site at http://www.ca-probate.com/attylist.htm.

If a Trust is created during the Trustor's (the person creating the Trust) lifetime, rather than in the Trustor's Will, it is called an inter vivos or Living Trust. When the Trustor retains the right to dissolve the Trust or change the arrangement, it is called a Revocable Living Trust.

While there are generally advantages inherent in the adoption of a Living Trust, some advantages may not be available or apply to your particular situation.

How Do I Set Up a Living Trust?

Three things are necessary for a Trust:

• One or more Beneficiaries;
• One or more Trustees; and
• A fund of cash or property managed by the Trustee for the benefit of the Beneficiaries.

Although a valid trust may be created without any specific formalities, careful drafting of the trust documentation and proper funding of the trust are required if you want to avoid unhappy surprises. A list of estate planning attorneys has been compiled by Mark J. Welch. You can visit his site at http://www.ca-probate.com/attylist.htm.

A Living Trust can give considerable flexibility to your estate planning and, at the same time, may save you money.

Will a Living Trust Reduce Taxes?

A Revocable Living Trust is generally not a device for reducing income, estate or gift taxes. However, there are certain facts of which you should be aware.

Gift taxes are not affected by the use of a Living Trust. However, you may wish to inquire whether a gifting program would be beneficial to you.

If you are married, your Trust can have a significant impact upon the estate taxes on the death of the second spouse. This is accomplished by the use of a Marital Deduction Trust(sometimes called an A-B or A-B-C Trust).

During your lifetime, you will be taxed as if you personally earned the income of your Living Trust as long as:

• You have the right to receive income from the Trust;
• You keep the power to revoke the Trust; or
• You have the power by will to name or change Trust beneficiaries (a general testamentary power of appointment).

• A Living Trust is not as expensive as probate.
• A Living Trust expedites asset distribution.
• A Living Trust gives you protection if you become incapacitated.
• A Living Trust, as a practical matter, can be more difficult to challenge.
• A Living Trust is necessary if your intended beneficiaries are minor children.
• A Living Trust may protect your estate from creditors' claims depending on the type of trust, date created, beneficiaries, trustees and creditors.

Your need for a Will is radically changed if you have a Living Trust.

The main function of a Will is to provide instructions on who is to inherit your estate. A Living Trust properly drafted and funded, accomplishes that.

However, a Will has other functions that you should be aware of, including:

Appointment of a guardian for your children

By setting up your Trust properly, you have protected your children's financial future. However, if you die before they are old enough to be on their own, a guardian will have to be appointed for them.

By having a Will, you can designate the person or persons you want to act as guardian or guardians.

Disposition of Non-trust Assets

If, at the time of your death, you own property which was not transferred into your Trust, probate takes over.

Your Trust assets are safe, but your non-trust assets pass to your heirs as if you did not have a Trust. A Will allows you to state how you want these non-trust assets distributed.

Before you decide if a Living Trust is right for you, you should carefully consider your personal estate objectives. You should consider both pre- and post-mortem costs of the different types of plans available.
 

Dudugjian & Maxey is available to assist you in determining your estate planning needs and in helping you answer the question:

Is a Living Trust Right for You?