What is a Living Trust?

A trust established by an individual during his lifetime to manage assets during his lifetime and to act as a vehicle for disposing of his assets upon death.  The Living Trust should not be confused with a Living Will (Directive to Physician) or a trust established pursuant to a Will.  A Living Trust is often used as a tool to plan for both death and incompetence.

What are the advantages of a Living Trust?

  • It can be a more effective tool for planning for later incapacity or incompetency than a General Power of Attorney.  The Grantor will serve as Trustee of the Living Trust so long as he is competent, then a Successor Trustee will assume management of the trust assets if the original Trustee (Grantor) is ever unable to handle his or her financial affairs.  Once assets are registered in the name of the trust, it is easier for a Successor Trustee to assume management and control of assets in the trust than with the use of a Power of Attorney or Guardianship.  Control over the incompetent’s assets is still achievable by the use of a prior executed General Durable Power of Attorney or a subsequent Guardianship appointment.
  • If the Living Trust is established properly, it is an effective tool for avoiding probate and preventing probate proceedings from becoming public upon the death of the Grantor.  This is especially advantageous if the Grantor owns real estate in other states.

What are the disadvantages of a Living Trust?

  • Living Trusts are more costly to establish than traditional estate planning tools.
  • If assets are not transferred into the name of the trust properly, then the effectiveness of a Living Trust will be greatly diminished.
  • Many individuals do not like having their assets held in the name of a trust and being responsible for the continued management of the trust.
  • The tax advantages for some assets may be lost if placed in the trust, such as retirement benefits and IRA’s.
  • If the Living Trust is not properly funded during the Grantor’s lifetime, then a probate of the estate of the Grantor may still be required despite the cost already expended by the Grantor for the Living Trust.  In this scenario, the overall probate cost may actually be greater than normal.

What other documents should be prepared and executed in conjunction with the Living Trust?

  • A pour-over Will which provides that any assets of the Grantor not held in the name of the trust upon his death will be placed in the trust as a part of the probate proceedings.
  • A General Durable Power of Attorney which gives the attorney in fact the specific power to contribute the Grantor’s assets to the trust.
  • A Durable Power of Attorney for Health Care and Living Will.
  • Actual preparation and delivery of deeds and other transfer documents necessary to transfer title of the Grantor’s assets into the name of the trust.

Is an attorney required to establish a Living Trust?

No, but it is strongly recommended that no one pay for the establishment of a Living Trust without consulting an attorney. Many of the Living trust forms currently on the market may or may not comply with Tennessee law and are not structured to adequately plan for death, incompetency and taxes.  An attorney can prepare all documents necessary to properly implement the Living Trust and to plan for death and incompetency.