LIVING TRUSTS

Every once in a while a client comes to me and asks about a living trust, or I see the effects of the client already having done that with the help of counsel. The one point I want to raise here as to living trusts is that they are typically done to facilitate the settling of an estate (of course well in advance of the death that would create the need to settle the estate), in an effort to avoid probate and similar type issues. As such, it can be a useful tool – but it is a complex tool. And I’ve seen it misused and ill-used more often than not. One of the problems is it requires that essentially all of your assets get transferred into that living trust. If you miss a bank or brokerage account, maybe a car or something else, in all likelihood you’ve negated at least part of the benefit of the living trust. And, the reality is that almost all of us are prone to making mistakes like that. 

From an income tax point of view, nothing is changed – transferring your assets into a living trust doesn’t change the tax situation. All these assets, the income therefrom, is reported on your personal return. The merit of a living trust may also vary considerably state by state. Thus, if it’s something that you have in mind, talk to an expert in the area of trusts and estates for your state.