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
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
What is a
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
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.
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.