The Benefits of Estate Planning and the Living Trust
By Shahed Hasan

We do not always stop to think about the future. We are too busy with our hectic everyday lives, occupied by our work and our families. Whatever planning we do is normally limited to our finances - savings and investments. We work very hard to accumulate wealth to provide for ourselves and our loved ones. But how much do we think about what exactly will happen to everything we work so hard to earn, upon our eventual passing? Often this is not a topic we give much thinking. However, if we do not plan ahead, the benefits of all our hard work may not fully maximize. This is where estate planning comes in.

What is Estate Planning?

Estate planning deals with the use, conservation and disposition of a person’s property and wealth. This involves two elements: (1) minimizing the tax consequences and other expenses that occur when a person’s property is transferred to another either during lifetime or at death; and (2) provisions for taking care of the decedent’s spouse and family.
An estate includes all the property you own minus your liabilities. To plan your estate, you must determine its value. There are two aspects of your estate: the probate estate and the taxable estate.

The probate estate is the portion of the estate that must go through the probate process before it can be transferred. Probate is the legal process by which a court validates your will and supervises the administration of the estate upon death . It is complex, tediously slow, costly, and often totally unnecessary. Property left by a will is normally subject to this procedure. All property that is transferred at death by various probate avoidance methods, such as the living trust, is not included in the probate estate. Property held in living trust is not subject to probate because it is not owned by you. Avoiding probate should be one of the goals of every estate plan. The taxable estate is the property that is subject to federal and state estate tax, if any, when you die. It is the gross value of all property owned by you less certain deductions.

What is a Living Trust?
The living trust is one of the most important legal devices used in estate planning.
It not only allows you to control your assets during your lifetime but also provides continuity in the management and supervision over your affairs in the event of your incapacity. In essence, you are seeing your “will” in operation while you are alive. The living trust also helps you avoid multiple probate proceedings if you own property in more than one state. It ensures that your survivors will have total control over your property after your death, without depending on the courts.
The living trust should be the cornerstone of almost every estate plan. You can revoke or amend the trust at any point during your lifetime. It can be funded by a simple transfer of property, and after that, your assets will be managed by your trustee for your benefit.

How Does a Living Trust Work?

While most people understand wills, many do not have any significant knowledge about trusts. A will is a legal document that transfers assets to heirs at death and names an executor or personal representative to do this. Similarly, a trust names a trustee to do the exact thing. But that’s where the similarity ends.
This is how a living trust works: you (the settler or trustor) establish a written revocable trust agreement, naming yourself as the beneficiary (or one of the beneficiaries) while you are alive and family members or others as beneficiaries after your death. Thus, you maintain total control over your assets and can revoke or amend the trust at any time. The trust is funded by transferring assets to it. Almost any type of property can be placed in the trust - bank accounts, stocks, bonds, real estate. Property is placed in the trust simply by changing the name or title of the asset to the name of the trust. Since you designate yourself as the trustee and continue to manage your property as before, no control is lost over your assets. However, be sure you understand the income tax and estate tax implications before making any designations.

Using a Living Trust and a Will

For proper estate planning, it is often necessary to create both a living trust and a will. This is particularly the case if there are assets that cannot be placed into a trust. When there are minor children, a will can also be used to name a guardian for the children. It is important to coordinate the living trust and the will, especially in situations involving payment of debts, taxes, and distribution.

The Importance of Planning for the Future

With just a little bit of planning in the present, your family can avoid tremendous headaches in the future. There are a multitude of tax and other benefits available. With good estate planning, you can take advantage of them. In many cases, the combination of a will and a living trust will be sufficient. In other cases, you may benefit from other estate planning devices such as life insurance trusts and family limited partnerships. Whatever you decide to do, you need to start thinking about the options. You owe it to yourself - and your loved ones.


Editor: Akhtar M. Faruqui
2004 pakistanlink.com . All Rights Reserved.