Living trusts were first used in 16th century England.
Kings wanting to limit land ownership oversaw distribution of property when a landowner died (a form of probate). To avoid disclosure of their land holdings, people set up Trusts with the Church to bypass the King. Landowners deeded property to their Church, in exchange for the promise that the Church would grant the land back to their heirs when the landowner died.
Today, living trusts are commonly used to hold assets from young beneficiaries, allow assets to be used by some people before being distributed to other beneficiaries and avoid court oversight in the transition of an estate.
Most standard living trusts and wills use similar language, making it easier for amendments by someone other than your document prepare and court interpretation of documents clearer.Benefits & Uses
Any assets in the living trust can be used to achieve a variety of estate planning goals.
Controlling Distributions. Young beneficiaries may make ill-advised decisions when receiving lump sums of money from life insurance or proceeds from the sale of a house. A living trust can hold money until a predetermined age or make partial distributions as beneficiaries reach certain ages. Early distributions for reasonable education, health, maintenance and support requests can be approved by the Successor Trustees you appoint.
Example: A beneficiary could receive a early partial distribution for the downpayment on a home if the active Successor Trustee(s) feels the trust's creators would approve the early distribution should the beneficiary show fiscal responsibility.
Maintaining a home for dependents. A trust's instructions can direct successor trustees to use trust bank accounts to continue paying your mortgage, tax and utility costs until your children finish school, at which point the trust can instruct all to vacate the home so the property may be sold and distributed to beneficiaries.
For blended families, if the deceased spouse owned the primary residence, a trust may allow the surviving spouse to continue living in the home before being distributed to the deceased owner's heirs.
Special Needs Trust Provisions. Those receiving disability income may lose benefits if they receive an inheritance. Often to receive disability income, one must spend down his or her estate to qualify. Receiving an inheritance will likely mean the inheritance will need to be spent before requalifying. Inheritances for such a person can legally be held in a trust until needed to prevent a disruption of disability income.
Providing for Pets. Pet food and vet visits can be costly. A trust can set aside any sum, such as $5,000 or $10,000 to reimburse the person who is caring for your pets. Any amounts left after your pets have passed can be returned to the estate or given to a charity. Learn more about ESTATE PLANNING FOR PETS.
No Contest Clauses. If a last will & testament is contested, the estate's transfer could be delayed during probate. If a living trust contains a "No Contest Clause", those contesting your estate will have their entire inheritances revoked. A No Contest Clause is not bulletproof but it often does the job of discouraging people from contesting the trust.
Avoiding Probate. Some assets already avoid probate: life insurance, retirement accounts and other assets listing living beneficiaries. For other assets and depending on your state, as little as $50,000 can trigger probate, which can last months to years. Learn more about PROBATE.
Minimizing Taxes. New federal estate tax laws for 2011 and 2011 no longer require married couples to have a trust to each receive their exemption, unlike previous years. Stay current with estate tax law changes. If your estate is over the federal or your state's estate tax limit, consult an estate planning professional. Living trusts do not affect your affect income taxes. Learn more about ESTATE TAXES.