RUST: 1. Assured reliance on the character, ability, strength, or truth of someone or something. 2. A property interest held by one person for the benefit of another. It's no coincidence that the two definitions of 'trust' are highly complementary. What good are your financial and estate plans if you don't believe they will work as intended? Among the countless financial tools available to you, few offer the certainty of a revocable living trust. Why? With a revocable living trust, you establish its terms and can retain control of its assets while you're still living. After your death, it's not subject to probate or prone to contention, as a will is. So whether you use it strictly to avoid probate, to support yourself in poor health, or to retain your privacy, a revocable living trust can ensure your last wishes are fulfilled.

Do you still     need a will?

Alive and well Trusts come in every size and flavor. What's so special about a living, or lifetime, trust? "A living trust is a trust you create while you're alive, as opposed to under your will, which is a testamentary trust," says William LaPiana, a professor of trusts, wills, and estates at New York Law School in New York City. In general, a trust creates a separate legal entity to hold your property. It's a safety deposit box of sorts for your assets. Instead of holding assets in your name, you transfer title of them to the trust. There are things you can't transfer to a living trust, for example, an IRA (individual retirement account). Check with an attorney. By appointing yourself trustee, you still use and control your assets—your house, vehicles, investments—but the living trust holds the title. Because a testamentary trust doesn't perform this act until after your death, it is subject to probate, an often time-consuming and costly process. Courts use probate to determine a will's validity, pay off creditors, and transfer property to beneficiaries. It can drain several thousand dollars in court and legal fees from an estate and easily take nine months to 12 months to settle. "All the assets are tied up during that whole time," says Rick Jones, an attorney in suburban Cincinnati who specializes in trusts and estate planning. "There's a lot of time and trouble." Under a living trust, the person who dies does not own any of the property that has been transferred to the trust. If all assets are titled in the trust's name, "You wouldn't have probate because there's nothing to pass under your will," LaPiana says. Revocable living trusts also are less prone to contests by relatives, as a will is. Why? A revocable trust is one you can alter at any time. Because the creator of a revocable living trust deals with the trust's terms in his lifetime and can change them at any time, the final terms of the trust reflect a comfort with its provisions.

A living trust     can save you the     time and trouble     of probate.

Standards of living (trusts) While many people establish a revocable living trust strictly to avoid probate, it can serve other important purposes. "The most important use of a living trust is to take care of things for people who can't do it for themselves," LaPiana says. That may include yourself. Commonly, the person who establishes the trust (called the creator) also manages it, as trustee, for the beneficiaries. But what happens if you develop a debilitating disease, such as Alzheimer's? You can name a successor trustee to assume control of the trust. He or she will manage the trust assets for you. "A revocable living trust is a wonderful management tool," LaPiana says. "The successor trustee can make decisions about the trust for people who can't do it themselves." A revocable living trust also offers another advantage: privacy. "A trust is not a public record, like a will," Jones says. "The details can be kept private. Only you and your beneficiaries have knowledge of its terms." To the surprise of many, a revocable living trust has no tax advantages. While the trust owns your property in name, you retain the fiscal benefit of your assets while you're alive. Therefore, you must report the trust's income on your own tax form. "For the purposes of federal estate tax and income tax, you still own the property you put in the trust," says Patrick Smith, chief estate planning attorney for Hartford Life Inc. in Hartford, Connecticut. "There is no gift tax benefit either, because you can revoke the trust. So there is no major tax advantage." Fortunately, you can pair a revocable living trust with myriad other trusts—A-B marital trusts, Q-TIP trusts, charitable remainder trusts—that do offer tax benefits. Combined, they potentially offer substantial savings on probate and tax bills.

You still use     and control     your assets—     your house,     vehicles,     investments—     but the living trust     holds the title.

Life support: steps to a successful living trust To reap the benefits of a revocable living trust, make certain that you've established your trust properly. Start by consulting with your attorney, who will draw up the documents. Depending on its purpose, a revocable living trust can cost between $800 and $2,000, says Jones. While 'do it yourself' living trusts kits are on the market that cost less, their one-size-fits-all approach may not address your needs. The trust document establishes the basics: the creator, the trustee, the beneficiaries, the assets to be distributed, and the successor trustee. In addition to stepping in if you become incapacitated, a successor will administer the trust's terms upon your death. "After you die, the trust becomes a separate legal and financial entity," Jones says. "So [upon your death] it has to have its own taxpayer identification number and own tax return." Usually, once the beneficiaries receive the proceeds, the trust ceases. But if you paired the living trust with another trust to support dependents needing continued assistance, the successor trustee sees that the trust remains in place. A living trust won't cover all your needs, however. "You'll need to sign a durable power of attorney, appointing someone to take care of your legal and financial affairs if you become incapacitated," Jones says. "Some states also require a living will or power of attorney for health care decisions. They allow someone to make health decisions on your behalf, as well as give you a say ahead of time if you want extraordinary measures." You'll also need a pour-over will (see sidebar) to tie up any loose ends. Most important, you need to fund your living trust. It sounds elementary, but it's where most people fail to follow through. "People don't put the property into trust," LaPiana says. "They have these beautifully written trusts, but there's nothing in them." Funding can be tedious. You must transfer every legal title to the trust. You'll need to draw up new deeds for your real estate. Stocks will need a new certificate of ownership. And beneficiary designations on retirement accounts and insurance plans may need to change. The work can pay off. Your revocable living trust lets you enjoy the fruits of your labor today while establishing a plan you can count on in the future. It's a tool that's certainly worth exploring to see if it is beneficial for you.

Most important,     you need to fund     your living trust.     A revocable     living trust has     no tax advantages     of its own.

Do you still need a will? At death, a living trust generally performs the same duties as a will. Just like an executor (also called personal representative) for a will, a trustee is charged with overseeing the distribution of the trust's assets to the named beneficiaries. So is a will redundant? No. In fact, it's necessary. A "pour-over" will designates that the trust receives any residual property not already titled to it. It ensures no stray assets are in your name—and therefore subject to probate. "You're never entirely guaranteed that, at the time of death, every piece of property you own will have been transferred to the trust," says Patrick Smith, chief estate planning attorney for Hartford Life Inc. in Hartford, Conn. "A pour-over will streamlines the assets and provides for a seamless distribution of the estate."

© 2000 Credit Union National Association Inc.