Living Trust: Deciding How To Managing Your Property

By: AARP Education & Outreach | Source: AARP.org | March 20, 2005

A living trust lets you arrange how you want your property managed while you are alive and how your assets should be distributed after your death. Living trusts are popular because they are one way your property can pass to your heirs without going through probate. Be aware, however, that these trusts may not be for everyone.

What You Should Know

Revocable living trusts have certain things in common with wills, but they also have important differences.

Like a will, a revocable living trust lets you direct how and to whom your property will be distributed after your death. You appoint a trustee to manage your trust, just as an executor would manage your will. The trustee holds your assets and distributes them according to the instructions you specify.

Unlike a will, a trust can also be used to specify how your property will be managed during your lifetime, in case you become incapacitated.

Should You Establish a Trust?

Trusts are not for everyone. You will pay fees to establish and manage a trust. Make sure your estate is large enough to justify those substanial fees. You have several other options if your concern is avoiding probate, such as how you hold title to real estate and by naming beneficiaries to insurance and investment accounts. Before taking any steps, discuss how a trust fits within your overall estate plan with your attorney, the trust officer of your bank, or your financial adviser.

Tips for Establishing a Trust

• Fund the trust. When you establish a living trust, you must specifically transfer the ownership of anything you want to be held in the trust from your own name to the trust. This is called "funding the trust." The trust will not take effect until the property transfer is complete. Any property that is only in your own name passes through probate as part of your estate. Property you hold as "Joint Tenancy with Rights of Survivorship" (JTWROS) automatically passes to your co-owners. Such property won't go through probate and doesn't need to be placed in a trust.
• Check your Medicaid eligibility. You may become ineligible for Medicaid if you create a trust that names you or your spouse as a beneficiary. If you create such a trust within five years of the time you apply for Medicaid, the government assumes that your trust assets are available to pay for your nursing home care. Talk with an attorney who knows Medicaid rules before creating any trust, or giving away any property. The laws are complicated and change frequently.
• Seek legal advice. Ask an attorney to advise you about establishing a living trust. In some instances, it's appropriate to have both a trust and a will.

Warning: Some Living Trusts Can Be Scams

Beware of salespeople who aggressively promote living trusts. These salespeople may suggest that you can save thousands of dollars by purchasing their living trust. They may urge you to act quickly to take advantage of a "special price." In their promotional material they often falsely inflate the cost and burden of probate. Several companies have intentionally created the false impression that AARP is selling or endorsing their products.

Living trusts sold in this way present several problems for consumers. The "trust" you buy may simply be a kit of documents that do not meet your planning needs. These kits may be over priced for what you gete, lack proper instructions, and may not meet your state's legal requirements.

AARP does not sell or endorse any living trust products. AARP does not work cooperatively with any company that sells or promotes living trust documents. AARP does not give such companies the names or addresses of its members.

Action Steps

Nolo Press publishes books, software, and a Web site to help consumers understand legal issues. Visit the Nolo Press Web site for information about living trusts, estate taxes and estate planning.

The American Bar Association's "Legal Guide for Americans Over 50," has easy-to-understand information about living trusts, wills, and estate plans.

The Federal Trade Commission's brochure "Living Trust Offers: How to Make Sure They're Trust-Worthy" defines important estate planning terms, offers tips on avoiding living trust scams, and provides information about organizations that can give additional information.