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Trusts come in a wide variety of structures and are implemented to accomplish myriad specialized objectives. One particular type, known as a revokable living trust, is a relatively simple and highly flexible tool that may be incorporated by families as part of a comprehensive estate plan.

Broadly defined, a trust is a fiduciary agreement in which a third-party trustee holds assets for the benefit of someone else (a beneficiary). A living or "inter vivos" trust is established during the lifetime of the person or persons establishing the trust (called the "grantors"). Most living trusts established for ordinary estate purposes are "revokable" meaning that the grantor may change or even dissolve the trust during their lifetime. The revokable living trust is a powerful planning tool that could be worth considering.

Most of us understand that a will sets out directions for the disposition of our assets upon our death. But the legal process of proving the will and distributing the loot, known as probate, can be expensive, time consuming and sometimes awkwardly public. The use of a properly designed living trust can avoid the probate process altogether and can also address other specific objectives that wills cannot.

The creators or grantors of the trust designate a trustee to control the assets during their lifetimes. Often, the grantors serve as their own trustees and continue to manage and spend their assets just as before. The grantors also name a "successor trustee" to step in upon their deaths, or in case of incapacitation during their lifetimes. The successor trustee oversees the division and distribution of the trust assets to the heirs named in the trust document, bypassing the complex probate process.

A revokable inter vivos trust can be revised at any time by the grantors as long as they live. Establishing the arrangement is relatively simple and can be handled by an estate attorney. It is also possible to do it yourself through several online legal services, although it is always best to consult with your own counsel since every situation is unique.

Once the trust is established, the grantors transfer title of their assets from their own names to the trust itself. For example, the family home would require a new deed revising ownership from "Bill and Mary Smith" to "Bill and Mary Smith, trustees of the Smith revocable living trust". Likewise with investment and bank accounts, automobiles, and all other titled assets. Other possessions like jewelry or artwork with no title are listed on a document enumerating the trust assets.

The grantors as trustees continue to control and enjoy their assets as they choose, and file the same personal tax returns each year.

The real advantage becomes evident upon the deaths of the grantors. Without the need to probate the estate, the successor trustee can immediately begin distributing to the named beneficiaries. And unlike a will, a living trust is difficult for a disgruntled party to challenge.

Trusts provide the grantors with control during their lifetimes as well as beyond. The document can specify how to proceed in case the trust creators become incapacitated, avoiding the necessity of court proceedings to assign a guardian. The trust can also make stipulations regarding the eventual distribution to beneficiaries with special needs, to address potential spendthrift issues with irresponsible heirs, or to limit access in the event of future marriages that may prove to be problematic.

There are certain limitations to a living trust as well. There is a cost to prepare the documents and to retitle assets into the trust. There is also potentially less protection against creditors if the estate has large debts. That is why consultation with a qualified attorney is important.

And in the event a living trust is appropriate, it does not eliminate the need for an up-to-date will. Trusts are often paired with "pour-over" wills that specify that any additional assets that escaped the trust or were acquired later are poured over into the trust at death. Wills are also important for naming guardians of minor children or other specific bequests not covered by the trust.

A living trust is not for everyone but is a valuable tool that is worth considering in planning for the future.

Christopher A. Hopkins is a chartered financial analyst in Chattanooga.

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