Living Trust FAQs

An introduction to living trusts — a popular way to avoid probate.

What’s Below:

Our Maryland estate planning attorney compiled these frequently asked questions about estate planning and living trusts. If you would like to set up a free consultation with our Maryland trust attorney, please call us now.

What is a living trust?

A trust is an arrangement under which one person, called a trustee, holds legal title to property for another person, called a beneficiary. You can be the trustee of your own living trust, keeping full control over all property held in trust.

A “living trust” (also called an “inter vivos” trust) is simply a trust you create while you’re alive, rather than one that is created at your death.

Different kinds of living trusts can help you avoid probate, reduce estate taxes, or set up long-term property management.

Why should I make a living trust?

The big advantage to making a living trust is that property left through the trust doesn’t have to go through through probate. In a nutshell, probate is the court-supervised process of paying your debts and distributing your property to the people who inherit it.

The average probate takes 6-12 months before distributions are made.

How does a living trust avoid probate?

Property you transfer into a living trust before your death doesn’t go through probate. The successor trustee — the person you appoint to handle the trust after your death — simply transfers ownership to the beneficiaries you named in the trust. In many cases, the whole process takes only a few weeks. When all of the property has been transferred to the beneficiaries, the living trust ceases to exist.

Is a living trust document ever made public, like a will?

No. A will becomes a matter of public record when it is submitted to a probate court, as do all the other documents associated with probate — inventories of the deceased person’s assets and debts, for example. The terms of a living trust, however, need not be made public.

Does a living trust protect property from creditors?

Yes and no. A creditor who wins a lawsuit against you can go after the trust property just as if you still owned it in your own name if the trust is a revocable trust where you maintain control over the assets. An irrevocable trust in which you transfer assets that you no longer have access to or control over, like an Irrevocable Life Insurance Trust, does shield those assets from your personal creditors. Irrevocable trusts can also be established to distribute income to the Settlor while protecting the trust principal from creditors.

If I make a living trust, do I still need a will?

Yes, you do — and here’s why:

A will is an essential back-up device for property that you don’t transfer to yourself as trustee. For example, if there is an asset that you have forgotten to transfer to your trust, or simply not gotten around to transferring to your trust, that asset must go through probate to be distributed to your heirs. A “pour-over” will, which is the type used when you have a trust, governs the distribution of these assets that are outside of trust ownership.

Can a living trust reduce estate taxes?

A simple probate-avoidance living trust has no effect on taxes. More complicated living trusts, however, can greatly reduce the federal and/or state estate tax bills for people who own assets above the estate tax exemption.

One tax-saving living trust is designed primarily for married couples. It’s commonly called an AB trust, though it goes by many other names, including “credit shelter trust,” “exemption trust,” “marital life estate trust,” and “marital bypass trust.” Each spouse leaves property, in trust, to the other for life, and then to the children or other beneficiary. This type of trust can save up to hundreds of thousands of dollars in estate taxes.

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