Tax Tip of the Week
For the week of August 30, 2004

Do you need a living trust?

You’ve heard people talk about setting up living trusts as part of their estate planning. A living trust is a trust you set up while you’re still alive. You transfer ownership of your house, cars, bank accounts, and other assets to the trust. A trustee, usually you, manages the assets. When you die, the trust distributes the assets in accordance with your wishes.

Unlike a will, however, assets in the trust don’t have to go to probate. This is the court-supervised process of paying off your debts and distributing your estate. Probate is usually a matter of public record. The advantages promoted for most living trusts are probate-avoidance and privacy.

Not everyone needs a living trust, though. In many states, probate is a simple, inexpensive, and relatively quick process unless you have a complicated estate. Setting up a living trust can be expensive and involves paperwork to transfer assets into the trust. You’ll have to stay on top of that as your assets change over time, and you’ll still need a will for any assets not in the trust. And generally a probate-avoiding living trust won’t reduce your estate taxes.

In summary, you should develop a full estate plan working with a trusted professional. That plan might or might not include a living trust or other types of trust. But never buy a living trust just because someone offers to sell you one! Selling unneeded trusts is a common financial scam.

For assistance with your tax planning, contact our office.

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