Trusts have been around for hundreds of years; specifically, the living trust gained popularity in the 1970s as a probate avoidance technique. Today, living trusts are often used as a foundational document in estate plans.
We’ve found that many folks have both questions and misconceptions about the living trust; so, in this three part series, we answer your living trust questions.
Will I always be the trustee of my living trust?
You can be the trustee of your trust as long as you are willing and able. If you become incapacitated or die or resign, a successor trustee of your choice will step into your shoes and carry out the trust instructions. If you create a joint trust with your spouse, you may both initially be co-trustees. When one spouse is no longer able or willing to serve as trustee, the other spouse often continues to serve as trustee either alone or with another co-trustee.
Do I use a living trust to avoid probate?
First, let us emphasize that there are many benefits of a living trust. Avoiding probate is just one of the benefits.
Second, let us emphasize that a living trust only avoids probate for those assets that are properly titled into the trust. This means that after your sign the living trust document, you MUST take the additional step of changing the title and/or beneficiary of assets. Your estate planning attorney will show you how.
Does a living trust pay taxes? I’ve heard trust tax rates are high.
While you are alive and well, your living trust is NOT a taxable entity. You file your taxes as you always have on your own individual (or joint, if married) 1040. You use your own social security number. Essentially, your living trust is invisible to the IRS during the lifetime of the original trustor.
We’ll answer a few more of your living trust questions in part 3 of 3, An Estate Planning Attorney Answers Your Living Trust Questions.