A living trust is a separate legal entity that you (the “grantor”) create while you are alive and as the grantor, you sign the trust document, providing yourself the opportunity to fund the trust. You get a federal ID number, akin to a social security number for the trust, to open accounts with banks or with a brokerage house in the name of the trust, and the trustee you designate.
The trustee can be yourself, or it can be yourself with a co-trustee, or it can be a third party trustee. The trustee will then hold assets, and invest and reinvest them in accordance with the requirements of the terms of the trust and either pay out to you, the trustor [grantor?]or to other beneficiaries you designate to receive interest and principal.
What does a living trust do?
In New Jersey, the living trust can help avoid probate, which is the court proceeding wherein the deceased’s property is distributed according to the terms of his or her last will and testament, or according to law if there was no will.
If someone dies and their will is probated, it can be costly, can cause delays, and it involves a lack of control. It can be a tremendous inconvenience and can also prevent your relatives from gaining access to your accounts until administration is complete or the taxes are paid. In addition, the probate becomes a matter of public record so anyone can see what the deceased owned and how it was divided among his or her survivors.
A living trust, on the other hand, keeps assets and beneficiaries private and provides for immediate succession upon someone’s passing without the necessity of a lengthy and expensive public proceeding.
The other advantage is peace of mind while you’re alive.
As people in New Jersey who have created a living trust become older, they’ll frequently appoint a trustee and one or more of their children as co-trustee. When something happens to the husband and wife, the grantors of the trust can take over as the trustees and it’s very seamless. It doesn’t involve anything at all with respect to a legal proceeding and the substitute or successor trustees would then continue to manage the assets held in trust with the brokerage house or the bank or whomever.
It also allows for a succession of interests. When parents who created the trust both pass away, the trust will continue to exist and be held for the benefit of the children and/or the grandchildren. It’s a very advantageous structure to allow people to make certain that their children and grandchildren are taken care of.
In addition, the living trust allows control over how the assets and income are distributed to certain beneficiaries. For example, most parents want to treat their offspring fairly, but there may be one child who may be an addict to whom they don’t want to bequest a large sum of money outright. So they may request that his share be held in trust and he’s not given any powers as a trustee or co-trustee. In this scenario, we would have other trustees in charge of managing his share, and distributing income or assets to him in safe amounts.
People who create and fund trusts for their offspring are happy to know that they can make an arrangement that allows them to make sure that their child is taken care of, while not giving a large sum of money at once that may be used destructively or squandered.
