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Wills & Trusts

Wednesday, February 19, 2014

Plain English Living Trust

Frank M. Greenfield urges you to never sign a legal document, especially one as important as a will or a living trust designed to protect your assets and your family unless you truly understand what you are signing.

What Is a Living Trust in the Context of Estate Planning? 

In the context of estate planning, a living trust is an entity which you create, in the form of a written document.  The document is referred to as a trust agreement or a declaration of trust.  The trust agreement serves the purpose of a will, but avoids a probate court proceeding upon death.  The person who creates a living trust is referred to as the Grantor.  The person who is charged with carrying out the terms of the trust is referred to as the Trustee.  Most often, when the trust is created, the Grantor and the Trustee will be the same person.  If the trust agreement designates you as Trustee, then you are the person who has complete control of all assets, in the exact same manner as you presently control your assets.  You have the option of designating two persons to act as co-trustees.       

Once the trust document is signed, it is deemed to exist as a legal entity.  For illustration purposes, a corporation is also an entity.  A corporation is owned by shareholders and is operated by its President.  A corporation, like a trust, is a "thing", an entity that has a legal existence.  A corporation owns assets, has employees, pays taxes, etc., but people own and operate the entity.  A living trust owns assets, but the power to control those trust assets resides solely in the Trustee during the lifetime of the Grantor.  Just as a corporation has a name, we give the trust a name, for example, the "John Smith Trust".   

After the trust agreement is signed, we proceed to transfer legal title, which is to say, ownership, of various assets to the trust.  In other words, the title to your real estate and various investment accounts will be transferred and conveyed to the "John Smith Trust".  The trust agreement provides that during your lifetime, all assets owned by your trust are to be used for your benefit.  Since you are the Trustee, you decide what is for your benefit.  During your lifetime you continue to have 100% control over your assets.  Nothing changes until death.  At that point, the Trustee designated in the trust agreement as the successor trustee (or surviving co-trustee, as the case may be) has specific instructions as to how to administer and distribute the assets that are owned by your trust.  The instructions read like a will, in that after paying debts, such as income tax, funeral expense, etc., the Trustee is instructed to distribute the trust assets to the beneficiaries you named in the trust agreement.   

Why do you need a living trust?  The answer is that a living trust avoids a probate court proceeding upon death.  When a person dies leaving property titled in his or her name, the court proceeding is necessary so that ownership of the decedent's assets are transferred to the proper beneficiaries in a manner that each beneficiary will have clear title and all rights of ownership to their inheritance.  Probate is required even if the decedent left a will.  By law and definition, a deceased person cannot own anything.   As to those assets owned by a living trust established during a person's lifetime, probate is not necessary because the assets were not owned by that person at the time of his or her death.     

A probate court proceeding consumes considerable time and money.   Among other benefits, a living trust gives you and your family peace of mind that your assets will pass to your beneficiaries in a timely manner with no probate court costs or related legal fees.    

FOR MORE INFORMATION contact Frank M. Greenfield at fgreenfield@fmg-law.com or visit us at www.fmg-law.com




Frank M. Greenfield & Associates, P.C., has offices in Chicago and Northbrook and assists clients with Business Law, Estate Planning and Real Estate throughout Chicago and the Greater Metropolitan Chicago Area including Skokie, Buffalo Grove, Lake Forest, Palos Heights, Arlington Heights, Wheaton and Elmhurst.



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