The Benefits of Living Trusts

In today's society, family dynamics have become more complicated. We have blended families, divorced parents, children born out of wedlock, step-children, half-siblings, and live-in partners. These relationships have made proper estate planning even more important.

Because inheritance laws may not fully protect all beneficiaries equally, additional considerations may need to be made in the course of estate planning. Having a blended family myself and having worked in the Trust Department for the First National Bank of Florida, I chose to create a living trust as a method to transfer my assets to my designated beneficiaries upon my death.

Creating a living trust, also known as a revocable trust, involves three basic entities:

The grantor, sometimes referred to as the settlor, is the owner of the assets that are deposited into the trust. In my circumstance, a trust is beneficial because I can choose which assets I want to deposit and which I will retain ownership. I keep my personal residence outside the trust in order to claim homestead exemption. I keep other assets, such as stocks, in the trust.

The trustee executes the provisions of the trust as directed by the grantor. Typical instructions include investment directives as well as distribution directives. The trustee can be an individual, but, for large estates, banks and other financial institutions often have trust departments which, for a fee, will oversee a trust. There can also be multiple trustees. There may be legal requirements of a trustee. When I created my first living trust in Florida in 1980, my trustee was required to be a resident of Florida. I have always chosen an individual family member as trustee in order to contain costs as my trust is not that substantial.

The beneficiaries are those who are entitled to receive income or assets from the trust pursuant to any stipulations created by the grantor. Should the wishes of the grantor change at any time while they are alive, beneficiaries and the distribution of assets can be changed with a quick amendment to the original trust document. This ability to amend is especially important in my own circumstance since I have six children, all of who have different financial needs.I have a married daughter, two other daughters over the age of 21 but who are still in college, and three children under the age of 18 who still live at home.

As my children grow and their own personal financial situations change, the provisions of my trust change with them. For instance, certain assets are stipulated to pay for college expenses. Once all my children have finished college, those assets are no longer obligated for that purpose and become part of the general makeup of the trust.

A living trust has two very substantial benefits. First, a living trust allows the assets of a grantor to flow directly to the beneficiaries without going through probate. This is a significant benefit. Having experienced family feuds over wills and bequests, I feel a trust document provides more assurance that my wishes are carred out. The trustee is under an obligation to fulfill the tenants of the trust.

Second, the grantor maintains complete control over the assets in the trust during his lifetime. This is another important element of the trust in my situation. I am only 52 years old and currently unmarried. Having total control over my assets is necessary in order to ensure that my own retirement continues to be financed. I want to leave my children an inheritance but not at the expense of my own living and health conditions.

A living trust has a significant disadvantage as well. Since the assets remain under complete control of the grantor, it is not an effective instrument for the purpose of asset protection during the grantor's lifetime.

Any form of asset may be held in a trust: real property, tangible or intangible property, or personal property. However, assets must be clearly defined as ownership of the assets is conveyed in the trust.

While terms of a will filed with a probate court are a matter of public record, terms of a trust are private and confidential. If there is a need for privacy, conveying property via a trust instrument will provide an extra layer of protection against public scrutiny.

Trusts can be extremely beneficial in matters of estate planning if executed properly. Be sure to consult a trusted financial advisor before creating a trust.

More from this Contributor:

Protecting Retirement Income for a Surviving Spouse

Do Treasury Inflation-Indexed Securities Benefit Retirees?

The Benefits of Staggering Investment Securities