You recently purchased a second home in Steamboat Springs and wonder about the potential estate and tax effects. Potentially, two probate proceedings, one here and one at your primary residence. The slogan doubles your pleasure, doubles your fun, could become two lawyers, two probates, rather than one. You have heard that a living trust avoids probate but, what is it? Is a revocable living trust right for you?

A living trust is created by a written document which is prepared for settlor (creator of the trust) while living. The other parties are “trustee, co-trustees or successor trustee” who become the managers of the trust and “beneficiaries” who will enjoy the benefits of the trust. Hence, the creation of the trust results in separation of benefits and management. The settlor may be all three: settlor, initial trustee and initial beneficiary throughout settlor’s life.

Choosing suitable trustee(s) is critical because they will manage the assets and may exercise discretion in making distributions. Settlor can arrange for a continuity of management through Co-Trustee or successor trustees. Having more than one trustee is desirable because in the event of settlor’s death or disability, they will be aware of the assets and the management priorities which settlor approves. Settlor can evaluate the trustees’ ability to act during his lifetime and make changes if desirable. If you don’t have suitable family or friends, a bank may be appropriate but is usually a more pricy alternative.

This type of trust is revocable, meaning that the settlor may withdraw assets from the trust, amend the trust, including changing the persons who are appointed as (co)trustee(s), may change the terms and beneficiaries of the trust and may revoke the trust in its entirety. If settlor’s thinking changes as to who or in what proportion beneficiaries will share in the benefits of the trust, that can be changed by amendment, so long as settlor is alive and competent.

An important part of the trust is a disability clause. Settlor can have a doctor or family member (usually two or more) determine competence, rather than a court, in a competency proceeding. In view of our extended life expectancies and prevalence of age related illness, it is desirable to plan for someone to take over your financial and personal affairs. If you have significant assets, continuity of management is helpful, to avoid misappropriation of funds, management mistakes or even outright fraud or theft. During a period of settlor’s disability, the Co-Trustees or successor trustees would provide for settlor’s needs and pay settlors bills.

A necessary step in getting the most out of the living trust is funding it properly. With possible exception of vehicles, insurance and retirement benefits, all settlors assets should be conveyed to the trust. Real property is conveyed by deed; personal property is conveyed by bill of sale; and bank accounts, CD’s, mutual funds and stock management accounts are re-titled in the name of the trust. Although, this involves some time and effort, it is well worth it to review and itemize your assets and get titles and records in order. This can avoids the risk that assets are overlooked and can save your family hours going through your papers trying to find out what you own. Because you have gotten your paperwork in order and provided for continuity of management, your family members will avoid some of the emotional burden of dealing with financial matters during a period of bereavement.

The living trust avoids the probate process and the attendant delay and expense as to all of the assets which have been properly funded into the trust. Although, there are other methods of avoiding probate, such as joint tenancy property, or pay on death bank accounts, they may result in clumsiness or unwanted tax consequences. If the estate is in excess of the estate tax exemption (currently 5 million plus inflation adjustments) an estate tax return still needs to be filed. It is due 9 months after date of death and the IRS has 18 months after filing to issue a closing letter. Because the assets are titled in the name of the trust, the cloud of the estate tax lien, which may delay the sale of assets in the decedent’s name, is not an automatic lien on trust property. If for example, it is desirable to sell the personal residence which is no longer needed and replace it with investment income property; this can be accomplished without the delay associated with the resolution of the estate tax issues.

Usually, a living trust is accompanied by a pour over will. In case some assets are overlooked or not funded into the trust, the pour over will makes the trust the beneficiary bringing the settlor’s assets together in one place.

Do you need a lawyer to create a living trust? Absolutely and preferably a lawyer with who experienced with trusts and estate planning. There are scammers who sell trusts which are often boiler plate, one size fits all forms using high pressure, scare or deceptive sales techniques, which should be avoided. Legal costs vary dependent on your family and financial situation. In Colorado, lawyers generally charge hourly for both trusts and probate. However, in some states (Florida and California) probate fees are charged based upon a percentage of the estate and can be harsh. The same tax strategies can be accomplished by either will or trust. The trust is not subject to court review and is not open to the public unless a dispute arises, giving the trust a privacy advantage.

Whether a living trust is right for you is an individual situational analysis. The persons most likely to take advantage of a living trust are (1) large estates; (2) people older than 65; (3) those with prospect of or family history of health issues; and (4) those with multi state assets. However, each individual’s needs must be evaluated on a personal basis.

Vance E. Halvorson

Attorney at Law






Intervivous Trust 9-21-2016 – VEHSTIC2013