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Revocable Living Trust

Also known as a "Living Trust" or “Loving Trust” or "Revocable Trust." If properly funded, one advantage of this trust is the avoidance of Probate. Probate is only necessary when a person dies owning assets titled solely in his or her own name. When that occurs, the only way to transfer title in that asset to another person is by court order. The person who obtains such an order is known as the executor or administrator for the Probate estate. Instead assets can be transferred to your beneficiaries by "someone" called a "successor trustee" that you appoint. You and your spouse, if married, typically are the “Trustee” during your life. You will name successor trustee(s) very similar to an executor or administrator for a Probate estate, except that the successor trustee is not required to administer the trust with court supervision. Rather, the successor trustee is provided with authority and broad powers to distribute the assets of the trust after your death.

You, as the grantor or creator of the trust, can amend, revoke, or alter your trust at any time during your lifetime. You never lose control over the assets you place in the trust.

You are still considered the owner of the assets for income tax purposes. During your life time, the income you earn on your Living Trust assets must be reported by you on your individual income tax return. This trust does not need to register with any state and pay ongoing fees; you simply place it in your safe deposit box.

The savings enjoyed using a Living Trust include the avoidance of Probate expenses and fees, the avoidance of guardianship expenses and fees, and the reduction or elimination of federal estate taxes. The successor trustee will carry out the duties and responsibilities of the executor or administrator, such as filing tax returns, disbursing assets to the beneficiaries, paying creditor claims, inventorying assets, etc.

The estate tax and gift tax exemption for 2011 is $5 million for individuals. The GST tax exemption is also $5 million for individuals. The gift tax exemption increased from $1 million in 2010 to $5 million in 2011. With proper planning, this change alone allows a tremendous amount of wealth to be transferred.

Regardless, the existence of the federal estate tax means there are significant estate tax planning opportunities. With a properly drafted Living Trust, a husband and wife may effectively double their estate exemption. Without the use of a Living Trust, a spouse's exemption may be lost upon his or her death.

Probate on an average can take four to nine months to complete, thus, freezing the assets over this period which your family may need at this most desperate time. For individuals who own real property in different states, they will have to endure multiple probates of that real property if they fail to implement a Living Trust. This occurs because real property can only be probated in the jurisdiction in which the land is located. By using a Living Trust, no Probate in any jurisdiction would be necessary since the property would be owned by a trustee at the time of your death, not you individually.

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