Should I Create a Living Trust?

I have heard it many times before: "I have a trust."  Even though a potential client says it, he does not know when it is created, or if it will be created in the future.  He does not know what is owned by the trustee.  It is unknown whether the trust is a revocable living trust.  

Simply, a revocable living trust (or just "living trust") is a trust created while you are ALIVE!   A trust created by a Last Will and Testament is not created until after death--it's in a will, so you have to die first!  That is why it is called a "testamentary trust."  

A revocable living trust should be funded or implemented while you are alive.  Otherwise, there is no reason to create it.  What does that mean?  It means that the creator of the trust, called the grantor, should title at least one asset into the trust.  In prior decades, people would literally staple a $10 bill to the last page of the trust; that is a formality that does not help the client.

To implement the revocable living trust plan, you should transfer an actual asset to it, such as real estate, a bank account, a brokerage account with stocks and bonds in it, or your ownership interest in your LLC or corporation that owns real estate or a business.  

Why do you have a revocable living trust?  It depends.  First, if you paid a large amount for it in a hotel conference center, then you were tricked into "buying a product."  Not everyone needs a living trust.  Here are some good candidates for living trusts:

(1) High net worth clients: someone worth, e.g., $20 million, may not want his spouse and children to wait for probate court to appoint an executor to manage the $20 million net worth after dying.  Create a living trust and appoint a successor trustee, who has the legal authority the moment after the grantor's death.  

(2) A business owner: If a person owns a majority or controlling interest in a business, then who is going to run that business by voting the membership interest or corporate stock in the entity after dying?  Again, waiting for an executor appointment may create a void in making business decisions, including something simple as making payroll--there may be money in the bank, but the bank may freeze the account!

(3) Even someone with moderately high net worth may consider the living trust if the client has no one to make decisions for her at old age.  If someone has no one to manage his or her own affairs if he or she becomes incapacitated can create a living trust and appoint a successor corporate trustee.  A corporate trustee is insured and bonded.  Even a person's most reliable relative, who means well, is not insured and bonded!

(4) A client with multiple real estate assets in other states.  Having real property in other states requires the probate of the estate in each of the other states.  Using a living trust could avoid that requirement.  Also, such person should consider other planning, such as LLC ownership of the real estate.  LLC ownership is personal property, and its probate is controlled not by where the LLC's real estate is, but where the owner lived at death.

If you fall into one of these categories, you should contact a lawyer regarding a living trust based estate plan.