THE ADVANTAGES OF A SIMPLE LIVING TRUST

For most people, the key benefits of a simple living trust are supervision of fund distribution and effective management of trust assets. Some find avoiding probate court is also a benefit, since probate proceedings are a matter of public record.

Many grantors are concerned about the possibility of leaving money or property to persons unable to handle the responsibilities--young children, for example. This is a major motivator when choosing to use a living trust over a simple will. A simple will of a married person usually leaves everything to the surviving spouse if there is a survivor, and names the children as secondary beneficiaries after the death of both parents. If both parents die while the children are minors, a guardian must be appointed over the children's inherited assets and over the children themselves. This is a cumbersome form of property ownership. More importantly, guardianship usually ends at age 18, and the assets must be handed over to the heirs. While guardianship of the children should be handled by will, the management of assets is better handled by trust.

A trust could provide for a number of preconditions. You could arrange it so large distributions are made:

When your children reach a specific age--perhaps 21 or 25, when they are more grown up. For certain worthy purposes--to pay for college, plan a wedding, or pay for a first home. Only under certain conditions--e.g., to receive an amount when they turn 18 and enroll in college and additional funds for each semester thereafter.

If the grantors are willing to give the trustee broad discretion, almost unlimited flexibility can be achieved in the day-to-day management of trust funds. Such flexibility could help the trustee deal appropriately with the unique abilities and opportunities (or disabilities or misfortunes) of each child. This is the approach most parents take while alive.

If little Sally, for example, showed exceptional promise on the piano, the trustee might decide, all things considered, to spend the money to send her to music school. If 21-year-old Jethro got kicked out of college, the trustee might decide to give him no more spending money. But if the young man agreed to an in-patient drug abuse program, the trustee would likely decide that would be money well spent. In family situations like these, the parents call upon the trustees to make the same kinds of judgments they would make if they were there and able.

Property and money management are important in another context: disability planning. Although the grantors of a revocable living trust are initially capable of managing their own affairs, that may not always be the case. The living trust is an extremely useful tool in planning for possible disability. Assets in the trust are already under the control of "the trustee," whoever may be serving at a given time. So, if the grantors initially serve as co-trustees, but become disabled, the successor can step in without interruption. The grantors' resources can then continue to be managed and used for their benefit.

Usually, family trusts are set up so that either one of the spouse-grantors can independently act as trustee if the other is disabled. But it is imperative that a back-up trustee be named in case something happens to both grantor-trustees. A living trust can help avoid lengthy legal proceedings, such as waiting for a court-appointed guardian, or court supervision of financial decisions.

Remember that since a testamentary trust is created in a will, it cannot help you plan for disability.

Let's look in some detail at what happens when the grantor of a simple living trust dies. There are a variety of options in contrast to a simple will alone.