What is a living trust

A revocable trust established during the settlor’s (person who is setting up the trust) lifetime is commonly referred to as a living trust, less commonly as an inter vivos trust. A common form of living trust is the self-declaration trust, wherein the settlor names himself as trustee. A living trust is typically created for one or more of the following reasons:

a.  The living trust is amendable and revocable any time during the competency of the grantor by a statement signed by the settlor. There is no need to comply with the formalities used in signing and witnessing a will.

b.  Should the settlor become physically or mentally incompetent, the living trust can serve as the vehicle for the continuing management of his assets. There will be no need for appointment of a guardian of the estate, supervision of the probate court, or creation of a public record, assuming all of the settlor’s assets have been placed in the trust.

c.  The living trust is also superior to the appointment of a guardian of the estate in those situations in which a nonresident individual trustee or successor trustee is used, since the trust allows for his functioning during the incompetency of the grantor, whereas the same individual would not be able to act as guardian of the estate.

d.  Because a living trust can validly dispose of property upon the settlor’s death, the trust corpus is not subject to post-mortem probate proceedings, thereby avoiding court supervision and public scrutiny. Unlike a will, a trust does not become a matter of public record, thus preserving the privacy of the settlor’s dispositive plan.

e.  While the client may be aware of the much-publicized probate avoidance feature of the living trust, he should be informed that both the trustee and the attorney are entitled to special compensation for the winding up of his affairs, preparation and filing of necessary tax returns, and other extraordinary duties imposed by reason of the settlor’s death. Generally, however, these fees are lower than probate fees would be for the same estate. Most corporate fiduciaries reduce their probate fee schedule by one third for the post-mortem administration of a living trust.

f.  As a practical matter there seems to be a far lower percentage of suits contesting living trusts than contesting wills. The notice requirement of the probate proceeding and the attendant publicity encourages such suits.