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What Is A Living Trust?

A living trust is a written legal agreement between a person (“Grantor”) and him/herself (“Trustee”) to hold assets during that person’s lifetime and then pass these assets to a successor Trustee who then holds or distributes the assets according to the Grantor’s wishes. The Grantor can amend or revoke the living trust at any time during his/her lifetime and continues to enjoy the right to use any property held in the trust just as they would without a trust. Assets that a living trust may hold include bank accounts, stocks and bonds, insurance policies, and real estate.

If you would like to know more about the advantages of living trusts, the estate planning attorneys at Mockensturm, Ltd. are here to help. To schedule a consultation, please call us at 419-792-1143 or complete our contact form. Our attorneys and CPAs serve clients throughout the Toledo area and all of northern Ohio.

A Living Trust Is Designed To Help You Avoid Probate

For many people, the primary purpose of a living trust is to avoid probate. Probate is a court-supervised process for administering a person’s estate after death. In most cases, assets in a living trust will not be required to go through the probate process. The benefits of avoiding probate include generally lower administrative and legal costs, greater privacy and quicker asset distribution. Creating a living trust is an effective solution for many Ohioans who want to preserve the value of assets while avoiding the probate process.

Re-Titling Assets Instead Of Creating A Trust

If your goal is to avoid probate, you might still be able to do so without a trust. For example, some assets can be titled so that they transfer directly to intended beneficiaries upon a person’s death. If you hold only assets that can be titled in this way and you provide for alternative transfers in case intended beneficiaries die before you, you may not need a trust. At Mockensturm, Ltd., we can help you re-title assets to avoid the need for a trust.

Will A Living Trust Reduce Taxes?

Many people erroneously believe that setting up a living trust automatically reduces tax obligations. That is simply not the case. There is no difference between assets in or outside of trust when it comes to estate taxes. However, only estates worth more than $12.92 million are subject to federal estate tax, and there is no Ohio estate tax. If the value of your estate exceeds $12.92 million, it is true that there are creative ways to use living and irrevocable trusts to minimize estate taxes.

Can Trusts Be Challenged By Heirs & Beneficiaries?

Both trusts and wills may be subject to challenges regarding validity and the intent of the deceased. In other words, a disgruntled heir or beneficiary may choose to challenge either a will or trust. However, there are provisions that can be added to both trusts and wills that will discourage challenges. One of the most common is a provision that automatically prohibits a beneficiary from collecting anything from the estate if they raise a challenge. This is called a “No Contest Clause.”

Living Trust Advantages

  • Privacy. Probate is by its nature a public procedure. Anyone can review records created in a probate case. Trust documents need not be filed or published in any public forum.
  • Control. No judge or other court official is required to administer the terms of a trust, whereas everything administered through the probate process is overseen by a court official.
  • Cost. Though the cost to prepare a living trust and re-title assets into it can be expensive at the time, it is usually much less than costs involved in the probate process. A probate estate will often be subject to over 4% of the total estate value in various administrative costs and legal fees.
  • Legal Fees. Legal fees required to properly administer a trust are usually much less than those that will be charged to manage the probate process because there is substantially less work to be done with a well written trust. Nevertheless, trustees often require the advice of an attorney regarding income tax and estate tax issues in the event the estate is large enough to be subject to estate taxes. Note, too, that income generated while a trust is being administered must be reported on a separate trust income tax return, which is usually prepared and filed by an attorney or accountant.

Living Trust Disadvantages

  • Commitment. Maintaining a living trust requires conscious effort. You need to remember that any asset of consequence you own must be titled to you as trustee to remain in trust. You need to train yourself to think of everything as “in trust” or “not in trust.” This is obviously a bit tedious, but once you become accustomed to it, the benefits of keeping all assets of consequence out of probate will result in significant benefits and simplicity for your heirs.
  • Costs. Setting up a trust isn’t cheap. Several hours of professional legal work are required to make sure you cover everything and that all assets are properly titled. Most trusts also require periodic updating to reflect your current thinking about who is the best trustee for the job and who should benefit most from your estate plan. However, keeping a simple will updated is nearly as costly, and the benefits from maintaining your trust far outweigh the cost of probate.

Contact Mockensturm, Ltd. Today

If you have questions or concerns regarding your estate plan, Mockensturm, Ltd. is here to help. To set up a consultation, please call us at 419-792-1143 or complete our contact form. Our estate planning team serves clients in Toledo and throughout northern Ohio.