There are several types of living trusts families use and this page will provide a brief overview.
Brief history
Living Trusts were first used in 16th century England. Kings wanting to limit land ownership oversaw distribution of property when a landowner died (a form of probate). To avoid disclosure of their land holdings, people set up Trusts with the Church to bypass the King. Landowners deeded property to their Church, in exchange for the promise that the Church would grant the land back to their heirs when the landowner died.
Trusts today
Typically estate planning language is similar from one attorney to the next. This makes it easier for any estate attorney to assist with amendments and courts to interpret documents.
How long do living trusts last? Most living trusts terminate a few years after the passing of the last named beneficiary unless language in the trust states otherwise.
This feature allows the living trust to manage and distribute assets long after the Trustor (creator of the trust) has passed.
How often do trusts need updating? Trusts often include language to automatically adopt new tax and estate laws.
It is still a good idea to review your Living Trust every few years to ensure the following:
Recently acquired assets are in the living trust's name
Beneficiary, successor Trustee and powers of attorney clauses still accomplish your goals.
Common Living Trust questions
Who controls the Trust? By creating the trust, you are the Trustor who controls all language and appointments in the documents. By appointing yourself Trustee you control all the assets in the trust, meaning you do not lose control of your assets. Married couples typically share control as Co-Trustors and Co-Trustees.
Revocable or irrevocable? If you want the ability to make changes to your trust, you will want your trust to be revocable. Most families create revocable living trusts. Estates over the estate tax limit of $2M in 2008 or $3.5M in 2009 can use Irrevocable Trusts to reduce the tax impact on their beneficiaries.
Can Trusts be changed after the Trustors pass? Trusts become more or less irrevocable after the last Trustor passes. Successor Trustees can manage the assets in the Trust but they are unable to change the language of the trust or veer from the trust's instructions.
What happens when the Trustor(s) moves? When you move, you will find states offer reciprocity and you will not need to recreate your Living Trust. Some states have a registration process, so contact an estate planner in your state to inquire about the process.
Can unmarried couples create a living trust? Unmarried and same-sex couples can create what are typically called Common Law Trusts. Family members, such as brothers or sisters, are unable to create living trusts but other estate planning tools such as Family Limited Partnerships can be used for estate tax purposes.
Common types of Living Trusts
Revocable A Trust - A living trust that can be pictured as a single box holding the assets of usually one or two people. If there are multiple Trustors, an A Trust doesn't maximize estate tax exemptions.
Bypass/A-Disclaimer Trust - A trust that starts as one trust (an A Trust) but within 9 months of the first spouse passing can be split into two trusts (an A/B or Survivor/Disclaimer) so each spouse can claim a federal estate tax exemption.
A/B Trust - Married couples use ths type of living trust in which two trusts (Trust A and Trust B) are created when the first spouse passes. Dividing the estate allows each spouse to avoid federal estate taxes. Otherwise, the surviving spouse takes ownership of all assets and has only his/her exemption when he/she passes.
To work, assets must be in your Living Trust
Your trust can only control assets in its possession. Your goal is to transfer appropriate assets into your living trust while you are living.
You maintain control of assets in your Living Trust.
Assets typically transferred to a trust: Property, bank accounts, vehicles and non-titled assets such as furniture, art, jewelry, etc.
Assets not in the trust but naming the trust as a beneficiary: Life insurance, annuities
Assets kept away from the trust: Retirement accounts, such as IRA's and 401k's. Consult your financial advisor.
Learn more about the roles of Trustors and Trustees or how to transfer assets to a living trust.
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Your trust can only control assets in its possession. Your goal is to transfer appropriate assets into your living trust while you are living.
You maintain control of assets in your Living Trust.
Assets typically transferred to a trust: Property, bank accounts, vehicles and non-titled assets such as furniture, art, jewelry, etc.
Assets not in the trust but naming the trust as a beneficiary: Life insurance, annuities
Assets kept away from the trust: Retirement accounts, such as IRA's and 401k's. Consult your financial advisor.
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