An excellent alternative to a Will is the “Living Trust” or an inter vivos revocable trust. A trust is legal entity where a trustee owns property for the benefit of beneficiaries. A grantor creates the Living Trust, transfers his or her property to the trust, and is usually the current beneficiary. Thus, the Living Trust becomes operative during the lifetime of the grantor. The trust assets are managed by the trustee according to the terms of the trust. Upon the death of the grantor, a second person or entity becomes the trustee. The successor trustee distributes the trust’s assets according to the directions in the trust. Hence, a Living Trust is similar to a Will because after the grantor’s death, his or her assets are distributed to designated people or entities. Unlike a Will, however, the Living Trust does not require court supervision—i.e. probate.
More About Living Trust
Avoiding Oklahoma’s expensive probate process is the first advantage of a Living Trust. But, for a Living Trust to avoid probate, assets have to be transferred to the trust. This generally includes preparing and filing deeds, changing the style and heading of bank and brokerage accounts, and preparing assignments. A Living Trust can also be quite flexible and drafted to meet your specific needs and desires. It can be amended or revoked if your circumstances change. The trust can further provide for the management of your assets if you become mentally incompetent or physically disabled. The successor trustee simply becomes the primary trustee. This avoids your family having to spend the time, emotional expense and money hiring a lawyer to request the probate court to appoint a conservator or guardian of your assets.
Moreover, if you have minor children, it is quite common for a Living Trust to provide for your children and prevent the probate court from managing their inheritance. This is accomplished by having a “minor’s trust” within the Living Trust. A trust for your children can be created with directions for a trustee to provide for them. A minor’s trust will generally direct the trustee to pay for your children’s college or vocational school; and if the trust has assets after their secondary education, your children receive their inheritance. Of course, many variations to this general framework exist.
Property “Passing” Outside the Living Trust and Conclusion
Not all property can or will “pass” pursuant to a Living Trust. For example joint tenancy property passes to the surviving joint tenant; life insurance is paid to the designated beneficiary; and retirement plan assets are transferred to the contingent beneficiaries or surviving spouse.
Tax Tip! Be aware that most pension plans can be subject to estate taxes and are subject to income taxes. Thus, charitable gifting of pension plan assets can save both income and estate taxes. Accordingly, a Living Trust should be coordinated with assets that are transferred by deed or other agreement.
In conclusion, Living Trusts have several advantages with few disadvantages. They can solve many of the problems associated with the “simple” estate plans. They are superior to a Will because they can provide for disabilities, avoid the probate hassles, and protect your privacy. Living Trusts, however, do have drawbacks. First, they are more time consuming to implement than a Will. Second, you must transfer your property to the Living Trust. Third, the legal fees for preparing a Living Trust are more than the legal fees for preparing a Will. Fourth, if the proper trustee is not selected, unanticipated problems can arise. And finally, if a person has sufficient assets, their Living Trust should be designed to save taxes and perhaps even be coordinated with other estate tax planning agreements.