About Living Trusts

“Living Trusts” provide an optional manner in which to hold title to real property that provide the property owners (the Trustees) several financial benefits. Estate planners often recommend Living Trusts as an important element of an overall financial strategy for asset preservation and tax avoidance. Always seek counsel from knowledgeable professionals such as a CPA or tax attorney when you have specific questions about Living Trusts. Below are answers to a few commonly asked questions.

Q. Why would I want to form a Living Trust?

A. The common reasons for holding property in Trust is to allow the Trustees (usually a husband and wife) to minimize or postpone death taxes, to avoid a time consuming and legally expensive probate, and to shield property from attacks by certain unsecured creditors. Married persons can usually exempt a significant part of their assets from taxation and may postpone taxes after the first of them to die passes.

Q. There are several different ways to hold title to real property. Is a Trust the best way to hold my real property?

A. Only your CPA or tax attorney can or should answer this question.

Q. Who are the parties to a Trust?

A. A typical trust is the Family Trust in which the Husband and Wife are the trustees and, their children are the beneficiaries. Those who establish the trust and transfer their property into it are known as Trustors or Settlors. The settlor’s usually appoint themselves as Trustees and they are the primary beneficiaries during their lifetime. After their passing, their children and grandchildren receive distributions directly from the trust if it is to close out.

Q. Why is it called a Living Trust?

A. The Living Trust is created during the lifetimes of the Settlors (as opposed to being created by their Wills after death) and usually terminates after they die and the assets held in the Trust are distributed to the beneficiaries.

Q. Can a Trust hold title to Real Property?

A. No. Trustees hold property on behalf of the trust.

Q. Can I “homestead” property which is held in trust?

A. Yes, if the property otherwise qualifies.

Q. Can a Trustee borrow money against the property?

A. A Trustee can take any action permitted by the terms of the Trust. The typical Trust Agreement does give the Trustee the authority to borrow and encumber real property. However, not all lenders will lend on a property held in trust, so check with your lender first.