Living Trusts and Estate Planning

A living trust can play an important role in estate planning depending on a family's needs. With all estate planning documents as a family's needs change over time it is important to review existing documents to ensure they still fulfill your family's goals. A well-written living trust and estate plan using guidance from a professional can often minimize future changes.

What Is A Living Trust?

A living trust is similar to a will in that it has distribution instructions and appoints people who act similar to executors. However, unlike a will, which is just a set of instructions on paper, a living trust may be pictured as a box which gives it the ability to accomplish many tasks.

Common uses include controlling distributions, creating a life estate, avoiding probate, reducing the likelihood of a contested estate and maximizing estate tax exemptions for married couples.

A living trust can stay intact and hold assets long after the trust's creator passes away until all of its objectives are completed and assets distributed from the trust.

In a Living Trust

Placing assets in a living trust does not take away control of assets from the creator of therevocable living trust as long as that person is named both the grantor and trustee. The grantor creates and has the power to amend or revoke the living trust. The trustee manages the assets on a daily basis for the benefit of the grantor.

A married or common-law couple can act as co-grantors and co-trustees but family members, such as a father and son or two sisters cannot act as co-grantors.

If the trustee becomes incapacitated, a successor trustee steps in to temporarily manage the trust's assets in the best interests of the grantor. The successor trustee has a fiduciary responsibility when means they are liable for their actions. It is a very similar arrangement to a financial power of attorney. Financial power of attorneys have no powers over the trust's assets.

When the grantor / trustee passes, a successor trustee steps in again and acts in a manner similar to an executor / personal representative. Assets in a living trust avoid probate though the successor trustee undertakes many of the same steps as if the estate were going through probate without the court's oversight. Probate in Texas is not as complicated as in other states.

The living trust might instruct the successor trustee to:

1. Manage assets for young beneficiaries until distributed at a designated age
2. Manage assets for special needs beneficiaries already receiving disability income
3. Maintain a residence owned by the living trust for the grantor's children and their guardians until the children finish school
4. Maintain a residence owned by the living trust for the spouse of a blended family or for other family members

A living trust is not the only estate planning tool which can accomplish the above goals. Testamentary trusts can handle the above tasks except for avoiding probate. Assets must be in a living trust prior to the grantor passing for a living trust to help assets avoid probate. A testamentary trust is created by a last will and testament after the will's creator has passed. If probate is not a concern, a testamentary trust may be easier to manage and less expensive. Consult an attorney for legal advice.

Estate Planning Documents

Other Estate Planning Documents Typically Used With A Living Trust

Last Will and Testament - which is called a "pour-over will" when accompanying a living trust. The will distributes any assets left outside the living trust and nominates guardians for dependent children.

Financial Power of Attorney - appoints an agent to handle financial matters outside the trust when unable to make decisions, such as during an incapacitation or while traveling.

Medical Power of Attorney - appoints an agent to handle medical decisions during an incapacitation

Advanced Directive (aka Living Will) - states one's intentions regarding the use of life support

An estate planning lawyer can help you determine which documents will best cover your needs. This website is for educational purposes only - it does not provide any legal, tax, financial nor insurance advice. Use this site to learn basic information about living trusts and other common estate planning documents for the purpose of developing effective questions when meeting with an estate planning attorney. It is strongly recommended to consult an attorney before taking any legal actions.