A living trust is a written legal document that is basically a will substitute, except that if done properly it allows you to avoid probate.    With a living trust, your assets such as your home, bank and brokerage accounts are titled in your living trust.   Retirement accounts should never be titled in a living trust as a change of ownership would trigger taxation.    You may, however, make your living trust the beneficiary of your retirement or IRA assets, but do consult with an attorney very knowledgeable in taxation before doing this, as in some circumstances there may be adverse consequences for doing so.

A Living Trust is designed to avoid probate and the costs and attorney fees associated with a probate.  Probate is a process where the Court puts its blessing on the transfer of property to your beneficiaries, and involves court filings, court costs and attorneys fees.   A Living Trust provides more privacy than probate, as no court will have a record of your asset nor your beneficiaries, and often is more cost effective than probating a will.

A Living Trust is ideal where you have assets, particularly real property, out of state.   This is because   when you die, if property is titled in your own name, your beneficiaries will have to hire lawyers to probate your property in your home state as well as the state where the property is located.   A properly funded living trust, however, can avoid probate in all states where you have property if that property is titled in your living trust.  This avoids the probate process in the state where the property is located since the property is titled in your living trust name, not your name, and thus does not need to be probated.

Living Trusts are also revocable, so you may change it in part or entirely,  or ever revoke it, while you are alive.   You will not have to file an independent tax return nor pay any additional taxes, if you create a living trust.

A living trust is also great for managing your assets if you become disabled.  Once the trust is created, you should title all your assets (except retirement accounts) in your trust.   While you will initially be the trustee, you will also name successor trustees in the event you become disabled or under an incapacity.   That person (or institution) may then immediately take over managing all assets titled in your trust, all without the expense and time going to Court to appoint someone to manage your assets for you.

Living Trusts aren’t for everyone but are suitable for many.  Please feel free to contact me for a free consultation.  James Morgan, J.D., CFP® – 303-457-9500

My commentary and solutions discussed in this article constitute legal information, not legal advice.   Possible solutions discussed may or may not apply to your situation and vary from state to state, and  may not be available in the state where you reside.   If you are a Colorado resident, please feel free to call me for a free consultation at 303-457-9500.  Be sure to discuss these issues with a competent estate planning attorney and/or tax advisor before taking any action.