Trusts

A trust exists when one person (often called the grantor or the settlor) gives property to another person (called the trustee) to hold and manage for one or more other persons (called the beneficiaries). A living trust simply describes a trust that the grantor can amend (change) or revoke (cancel). Through the terms of the living trust, the grantor keeps all the benefits of any property placed into it for the rest of his or her life. The grantor also can be the trustee, but the grantor’s spouse or a bank or trust company also often serves as trustee. A living trust can be funded with any property such as bank and brokerage accounts, stocks and bonds, a home and other real estate. Some living trusts may not be funded initially, but rather at a later time or at the grantor’s death.

Howard can help advise when a trust should be funded and with what property. The terms of a trust are described in writing in a document often called the declaration of trust or trust agreement. This document is signed by both the grantor and the trustee.

What is the purpose of a living trust?

A living trust may have many purposes. A purpose often given for living trusts is to avoid probate. It is true that property owned by a living trust will not be probate property and subject to the jurisdiction of the probate court after the grantor dies. However, people usually establish trusts to protect property for their families and to avoid or reduce potential estate taxes. Avoiding probate often is secondary to achieving these more direct goals.

What are the advantages of a living trust compared to probate?

Compared to probate, there are many differences, but also some similarities in the manner in which property is administered in a living trust following the death of a grantor. Among the characteristics of administration of a living trust that a person may find desirable are:

Privacy. The terms of a living trust are contained in a private document, while the terms of a will, including beneficiary designations, become a matter of public record once the will has been filed with the probate court. In addition, other information filed with the court during the probate process, such as the inventory of assets and the written account of all receipts and disbursements of the estate, also become matters of public record. The administration of a living trust generally is not made public.

Control. The absence of any requirements to file a will or any other reports with a court increases the independence and control of the trustee, in comparison to an executor. Lower costs. A living trust can eliminate or reduce the probate process and consequently eliminate or reduce the typical components of cost in the probate process.

Speed of transfer. A trustee could begin making distributions of assets to beneficiaries moments after the death of the grantor. An executor cannot make distributions until he or she is appointed by the court after the will is admitted to probate. This appointment generally occurs within days after death and, once appointed, the executor is legally empowered to distribute probate assets to the beneficiaries pursuant to the will and statutes. However, it is not necessarily prudent for either a trustee or an executor to immediately distribute assets.

An executor may be personally liable for the claims of creditors left unpaid by the estate as well as any unpaid federal and Ohio estate taxes. Consequently, the executor generally will not make final distribution to the beneficiaries until the executor is satisfied that all valid claims have been paid and all estate taxes have been finally determined and paid. The trustee of a living trust also may be held personally liable for unpaid estate taxes and, in some circumstances, unpaid creditors.

Avoidance of multiple probate proceedings. Finally, if homes or other real property are owned in a number of different states, use of a living trust may be especially useful to avoid separate probate proceedings in two or more states.

If I decide a living trust may be right for me, how should I set one up?

If you believe that a living trust may be right for you or if you are not sure if a living trust is right for you, consult with us. After gaining information about you, your family, and your assets, and listening to your goals, Howard will be able to discuss with you the best ways of achieving your goals and help you decide whether a living trust is best for you.