Estate Planning With Trusts

As discussed in chapter one, there are serious consequences awaiting you and your family if you fail to properly plan your estate. The dangers of owning property in joint tenancy were discussed as well as the government’s default plan, which will control your estate if you become disabled or die. To determine whether the government’s default plan is the option you want for yourself and your family, simply ask yourself the following questions:

  • Will the government’s default plan keep my family out of guardianship court if I become disabled?
  • Will the government’s default plan keep my family out of probate?
  • Will the government’s default plan protect my family’s privacy?
  • Will the government’s default plan create the least delay and hindrance for my family?
  • Will the government’s default plan make sure that my family pays the least amount of court costs and legal fees?
  • Will the government’s default plan make sure that my family pays the least amount of taxes?

As the answer to each of the above questions is an emphatic “No!”, you will want to protect yourself and your family by proactively planning your estate. In our experience, trusts are the best legal tools that can be used by a will planning attorney to plan your estate.

What is a trust?

A trust is a written legal document that provides instructions on how the property titled in the trust’s name is to be managed. These written instructions can provide important legal benefits and how to process the transfer such as conveyancing.

There are generally three people who are involved with trusts. First is the person who makes the trust. This person is therefore appropriately known as the trustmaker or as is the case with married couples planning together in one trust, joint trustmakers. Second is the person or institution (like a bank) entrusted by the trust maker to carry out the trust’s instructions. This person is known as the trustee. Third is the person who benefits from the trust. This person is known as the trust beneficiary.

One advantage of revocable living trust is that the same person who makes the trust can also be, and usually is, the trustee and the beneficiary of his or her own trust. Therefore you can make a trust, be the trustee who manage is it, and also be the one who benefits from it.

Trusts have been used since the Middle Ages and actually predate wills. They can also take various forms. Two main types of trusts are testamentary trusts and living trusts.

What is a testamentary trust?

When a person drafts a will, sometimes they do not want the inheritance to go immediately upon their death to a spouse or child. Instead, they want the property to be managed for the beneficiaries’ protection over an extended period of time. One way to accomplish this is to state in the will that upon the maker’s death, a testamentary trust will be created to manage the inheritance for the beneficiary. A testamentary trust, like a will, is legally effective only after you die and cannot provide any estate planning protections to you or your family during your lifetime.

Testamentary trusts are created in wills and like wills they are court supervised as part of the required probate court proceedings. This supervision continues until the probate is ended. This means that if you create a testamentary trust to manage assets for your children until they turn 30 years old, your family will have to deal with probate court proceedings year after year until your youngest child turns 30. The best estate planning attorneys seldom use testamentary trusts because of this negative consequence. Instead, living trusts are the legal tool of choice used to meet the estate planning needs of most people.

What is a living trust?

Living trusts are a special type of trust that go into legal effect immediately upon their signing, i.e., when the trust maker is still alive. They are also known as “inter vivos” trusts, which means “during life” in Latin. This distinguishes them from testamentary trusts, which, as discussed above, become legally effective only after the trustmaker dies. Living trusts therefore offer lifetime planning opportunities (such as instructions on how to manage your property if you become disabled) that simply cannot be had with the testamentary trust which takes effect when it is too late.

Living trusts are increasingly being used as the ideal solution for those who no longer want to expose themselves to the dangers of joint tenancy or force the state to go through probate with a will. There are so many advantages to using trusts that recent studies report that up to half of all people who now play in their states are using trusts instead of wills.

We are not surprised by this trend. The advantages of a properly designed and funded living trust include the ability to plan for a possible disability, legitimate tax avoidance, asset protection for the surviving spouse, individualized planning to protect your spouse and children, enhanced privacy, and probate avoidance. Also, because a  properly drafted a living trust can own any type of stock and participate in partnerships and limited liability companies, they can be used to smoothly transfer the family business to the next generation. If you own a small business, a living trust can enhance your business succession planning.

Furthermore, with a living trust one can still take advantage of the probate process if desired. The difference is that with a living trust the family has a choice of deciding whether probate court proceedings have any benefit–it is not forced into probate as happens to those who failed to plan or plan with simple wills.

Living trusts also come in several different types. The most commonly used living trust is the revocable living trust.

What is a revocable living trust?

The term revocable means that the instructions of these trusts can be amended whenever the trustmaker desires. These trusts are popular because they provide the trustmaker the maximum flexibility in controlling the trust assets and the availability to change the plan whenever desired. While parents are alive and healthy, they act as the trust’s trustee and have total control over the property in it; however, if one or both parents suffered disability, the trust’s detailed instructions state how the parents should be cared for and how property held in the trust should be managed. Additional instructions state how the children and other loved ones should be cared for after the parents die. Since these trusts are revocable, their instructions can be changed or cancelled any time so long as the trustmaker is still legally competent. Also, property can be placed into or removed from the trust anytime the trustmaker desires.

How does one place property into a revocable living trust?

If you create a trust, you will need to decide what property should be placed into your trust so that your trustee gains legal control over it. Property is placed into a trust simply by changing its title to name the trust as its legal owner. This process of changing title is called funding the trust.

Almost any type of property can be funded into a trust. The funding process consists of simply signing documents that name the trust as the new owner of your property. For example, some assets such as real estate, are funded into a trust by preparing and signing a new deed that names the trust as the new owner.

Other assets such as savings accounts, are funded into a trust by signing a new signature card that names the trust as the new owner of the account. Still other assets (personal property including household furnishings and jewelry) are funded into a trust by signing a document known as an assignment that names the trust as its new owner.

What are the benefits of funding or revocable living trust?

Funding a trust take some work but is well worth the effort for one very important reason: the trustee has legal control only over property titled in the trust’s name. Any property not titled in the name of the trust is never legally owned by it and property not owned by the trust is in danger of having to be probated when the owner dies; however, property that is titled in the name of the trust never has to go through the probate court because trusts never die!

If the funding process sounds confusing to you, thinking of it in another way might help. Some have described a revocable living trust as a magic box in which you place into it the title to the house, the car, the checking account, the investment account, and anything else desired. Since you can name yourself as the trustee of your own trust, you will maintain legal control over everything you put into your magic box. At any time you want, you can just reach into the box and take out the title to any asset and do with it as you please. You can sell, trade, invest, or give away any trust asset just as if you never had a trust. And at your death, it is as if the magic box is automatically handed to your designated successor trustee to administer your property according to your instructions. All of this happens without your property being probated.

What instructions can a revocable living trust contain?

The instructions contained in a revocable living trust are limited only by the imagination and creativity of the trustmaker. Nonetheless, most trusts will contain several important instructions including who will serve as a successor trustee, what happens if the trustmaker becomes disabled, and who will benefit from the trust after the trustmaker dies.

What successor trustee instructions should be included in the trust?

Some of the most important instructions in revocable living trusts pertain to who will replace the trustmaker if the trustmaker can no longer serve as a trustee because of disability or death. The successor trustee will assume the legal responsibility of managing the trust assets according to its instructions. Accordingly, the successor trustee must be exceptionally trustworthy, excel at managing property of a considerable value, and be capable of following detailed legal instructions. A detailed discussion of a trustee’s responsibilities is presented in the chapters that follow.

What disability instructions should be included in the trust?

It is impossible for you to plan for a potential disability in a will, but revocable living trusts are ideal legal tools for this vital planning need. On any given day, a person has seven times greater chance of becoming disabled than dying. Therefore, planning for the possibility of a disability is only common sense. As planners, we believe that a revocable living trust is not complete unless it contains specific instructions for the trustee to follow if the trustmaker becomes disabled.

For example, many of our clients tell us that if they become disabled, they want to be cared for in their homes as long as medically feasible. In such instances, the trust can contain individualized disability instructions such as the following:

  • Authority to use trust assets to maintain the home so long as it is occupied and to retrofit it for handicapped Accessibility if necessary;
  • Authority to pay for services such as visiting nurses, 24-hour care, hospice, and other needed caregivers to make staying at home a reality; And
  • A statement of the desire to participate in normal activities of daily life to the maximum extent possible including outings, recreation, travel, and religious or spiritual involvement.

What instructions pertaining to the trust beneficiaries should be included?

Detailed instructions can be included in your trust that will enable you to leave what you want, to whom you want, when you want, and in the way you want just as if you were still alive and personally giving those instructions. You can be as creative as you desire and specify the conditions and timing of distributions to your loved ones. For example, if your children are minors, you can leave detailed instructions that inform the trustee how to use trust assets to raise your children and the preferred type of schooling to provide for them.

Alternatively, your living trust can be drafted to benefit any number of people in exactly the way that you want. Possibilities include friends, grandchildren, or even charities. Such planning can be designed to benefit them immediately or even over a period of several generations.

Are there any other benefits of having a revocable living trust?

There are several other benefits of having a revocable living trust. These include the following:

  • Revocable living trusts are private documents that do not require court approval. Your beneficiaries will not have to wait for court permission to approve distributions of trust property. Outsiders and potential predators will also be prevented from learning the terms of your estate plan and using the knowledge against your loved ones.
  • Court challenges to wills are successful 25% of the time period a living trust is more difficult to attack partly because its instructions are not readily available to relatives or others who might not be happy with these instructions.
  • A living trust can hold property owned by a family in more than one state and save the family the cost and difficulty of conducting probates in multiple states.

For all these reasons and many others, revocable living trusts are the legal tools that we find most often best accomplish our clients planning goals.

What else about revocable living trust is important to know?

There are three common misconceptions about revocable living trusts. The first is the mistaken belief by some that putting your property in a revocable living trust will protect it from predators. This is simply not true. If you retain the legal right to use the property in your trust however you please, your creditors can go after it. While there do exist some types of trusts that provide some creditor protection for the beneficiary, revocable living trusts do not fall into that category.

A second misconception is that placing property into revocable living trust will protect it from nursing home costs the assets in a revocable living trust remain countable for Medicaid purposes so that do not protect your assets from being used for nursing home care.

A third misconception about revocable living trusts is that they can be used to avoid income taxes. Again, this is not true. Placing your property into revocable living trust will not change your personal income tax status or obtain for you any favorable income tax advantages. For income tax purposes, the IRS will continue to treat the property as if you still individually own it. Similarly, a revocable living trust does not increase any income tax burden. One can hire a trust tax consulting service for additional guidance on taxes and 1031 exchange rules.

Unscrupulous individuals sometimes promote these misconceptions about living trust in an attempt to sell trust forms or other services to make a quick profit. Do not believe them.

Revocable living trusts are excellent tools for avoiding costly guardianship hearings, probate proceedings, and legal fees and costs. Drafted correctly, they can help your family legitimately avoid estate taxes and keep you in control of your property to benefit you and your loved ones. In order to obtain these benefits, you need and deserve the quality legal advice available only from a qualified estate planning attorney.

About Us

The lawyers of Ross Estate Planning, LLC draw on a strong and diverse body of expertise and experiences.  We are well equipped to handle all areas of retirement and estate planning, and we are serious about solidifying the futures of our clients. We have dedicated our careers to fighting for the future our clients. If you or someone you care about is looking for answers about retirement, please do not hesitate to contact us for a consultation. We believe in carefully evaluating every case that comes through our door.  Consultations are always free.


  • Chapter 1
  • Chapter 2
  • Chapter 3
  • Chapter 4
  • Chapter 5
  • Chapter 6
  • Chapter 7
  • Chapter 8
  • Chapter 9
  • Chapter 10
  • Chapter 11
  • Chapter 12
  • Chapter 13
  • Chapter 14
  • Chapter 15
  • Chapter 16
  • Chapter 17
  • Chapter 18

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This book addresses important estate planning ideas for individuals and business owners.  Although it is intended to provide a general introduction to the legal, accounting, tax, financial planning and investment issues that affect your estate plan, you should not rely upon this book as your sole source of information and advice for these important topics.  Changes in the law, or in the interpretation of such laws, occur frequently and such changes made after this manuscript was completed may affect the recommendations made by the authors.  Also, the recommendations made herein are general in nature, and therefore, may not be suitable for every reader.

A reference book like this should never be seen as a substitute for professional assistance.  Legal, accounting, tax, financial planning, investment or other advice should be obtained from a competent professional in that specific profession.  We recommend that for your estate planning needs you consult with one of the Contributing Authors listed after the Introduction.  These attorneys dedicate their legal practices to working with families to design and implement estate plans that meet each family’s individual needs and desires.  Your family’s situation is unique and should receive individual attention.