First, you name the trust. Typically, it’s named after the individual or couple setting up the trust, such as “The John and Jane Doe Living Trust.” Next, you specify where you want your assets to go upon your death(s). Once you sign and notarize the living trust, it’s a legal and binding document. You are not required to file with the state, you do not need a Tax ID number, and there are no filing fees or tax returns.
A living trust provides no income-tax savings, and for income-tax purposes, it’s as if it doesn’t exist. However, if the size of your estate is above the amount exempted from estate taxes, the trust can be structured to reduce or eliminate estate taxes.
Once the trust is notarized, you need to fund the trust. “Funding” the trust is the process of transferring ownership of your assets to the trust. For titled assets (bank accounts, cars, stocks, etc.), you change the ownership of the asset to the name of the trust. For real estate, new deeds are filed with the county recorder where the property is located. For assets without title (jewelry, artwork, antiques, etc.), you simply list the items on the Schedule “A” of the Trust. You would also write a description of the items, such as "American Heritage billiard table, brown leather couch and diamond wedding ring."
You can also fund the trust indirectly by transferring your interest in other entities. For example, if you hold assets in family limited partnerships or LLCs, the trust can hold your interest in these entities. It’s important to remember any asset not funded in the trust will pass through probate.
The vast majority of Americans don’t have an effective estate plan in place when they die and, by default, subject their heirs to the frustrations and costs of probate. Setting up a revocable living trust enables you to pass assets to your heirs efficiently, and is one of the most loving things you can do for your family.
Jim Jones is the director of legal services for the American Society for Asset Protection. To receive the complimentary 80-minute audio CD, “Advanced Lawsuit Protection, Tax Reduction, and Estate Planning Strategies,” send your name and mailing address to firstname.lastname@example.org . For more information, visit www.americansocietyforassetprotection.com.