What is a Living Trust?
A Living Trust is probably the most common instrument used by estate planners today for passing property upon death. A Living Trust allows an individual (the "Settlor") to put all of his or her property into a revocable living trust and name himself or herself as trustee. When the Settlor dies, the successor trustee conveys the property held in the Living Trust to the beneficiary designated by the Settlor in the Trust instrument.
A Living Trust allows the Settlor to pass his or her assets to a beneficiary quickly and inexpensively upon death of the Settlor and to revoke the Trust at any time during the life of the Settlor. A Trust may be funded by a life insurance policy even though the actual funds do not go into the trust until the Settlor passes away.
One Common Complaint About the Living Trust
One common complaint about the Living Trust is that it should be drafted by an attorney which can result in a lengthy and expensive document. You may be able to find online software to help you draft the document yourself, but doing may expose you to the risk of not crossing a "t" or dotting an "i" and having the trust declared invalid.
States that provide protections to family members such as the probate homestead found in Florida and California are unavailable to dependents of the Settlor. Also, creditors may be able to attach property of the Trust if the Settlor's estate is insufficient to cover the debts.
Trust Property Is Included in Decedent's Estate
Trust property is included in the decedent's taxable estate for estate tax purposes. The beneficiary takes the property at a "stepped up" basis.