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Facts About Living Trusts

A Living Trust contract does not require registry or recording with any municipality, court or county. The agreement is a private contract between two people: the trust maker and the trustee. Requirement to record a private contract would make its contents public record which would be unconstitutional.

The trust is actually about 500 years older than the "modern" probate system. The freedom to create a Living Trust is protected by the Tenth Amendment to the United States Constitution which leaves certain personal rights to the states, among them the right to form a corporation, do business under an assumed name and create a trust. The outlawing of trusts in America would not only require a formal amendment to the United States Constitution, but also raise havoc with every corporation doing business in the country including General Motors, General Electric, General Mills and Grandma Ginny's General Store. You can safely bet the rent money that this will not happen.

Based on English Common Law after being ruled legal in Chancery Court of England in 1535, a Living Trust is valid in all 50 states and every free country of the world.

A Living Trust contract can be altered in about five minutes with a special amendment form. Simple modifications such as changing a figure from 9 to 10 percent, can be affected simply by crossing out the figure "9", writing the figure "10" above it and signing your initials.

A revocable Living Trust is revoked by reversing the procedure that originally created the trust, namely titling the assets back into the personal names of the trust makers, a right that is available to the trust maker at any time. No documents need to be filled out. When the assets are all back in the personal possession of the trust maker there are no assets in the trust which means there is no trust. The only exception would be if the trust makers had engaged a corporate trustee such as a bank. In such a case the trust makers simply send the corporate trustee a registered letter stating that its services are no longer needed.

Assets that name a beneficiary on the title of the asset (insurance policies, annuities, 401Ks, IRAs, etc.) need not be placed in the trust, but should be reviewed to make sure contingency beneficiaries have been listed on them. By naming your trust as a contingent beneficiary, the asset will flow into the trust and be distributed by the terms of the trust in the event that both trust maker and the primary beneficiary (usually the spouse) die in a common accident.

Assets do not require an evaluation when placed in the trust nor should assets be formally listed in the trust contract. However, as a helpful courtesy to your successor trustee, list your assets informally on a separate piece of paper and attach it to the trust contract with a paper clip or staple. Trust assets should be evaluated immediately after the surviving spouse dies.

Automobiles, boats and RVs generally pass to the heirs outside of probate in most states. Yet, to avoid possible misunderstandings, it is wise to place such items in the name of the trust.

A Revocable Living Trust does not render its maker judgement proof nor was it ever intended. Though the assets are owned by the trust rather than by the maker or trustee of the trust, the trust maker still has the power to amend or revoke the trust and is thus considered collectable.

For Estate Tax purposes, all assets both in and out of the trust are considered a part of the estate. This would include the face value of insurance policies, IRAs, 401K plans, annuities, pensions, etc. If accomplished three years before death, life insurance placed in its own Irrevocable Insurance Trust will not be considered a part of the estate.

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AEPAD is the American Estate Planning Attorney Directory.  While the information on this site deals with legal issues, it does not constitute legal advice. If you have specific questions related to information available on this site, you are strongly encouraged to consult an attorney who can investigate the circumstances of your situation and the particulars in your state.