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HOW A TYPICAL SIMPLE LIVING TRUST WORKS IN LIFE
Let us examine how a typical simple living
trust works during the grantor's lifetime. In this example, we'll look at the
needs of a married couple, but note that a trust can easily be drafted to suit
the needs of a single person or an unmarried couple.
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A single-family trust is often used
for a married couple whose only children are those they share. In this example,
the spouses are co-grantors as well. The simple living trust is revocable.
The grantors initially transfer ownership of any or all of their assets to the
trust. Such a transfer might be made, for example, by changing the family joint
checking account to the name of "Mom and Pop Jones, trustees of the Jones Family
Trust."
The trust document gives the grantors
complete control over the trustee and all property in the trust. The grantors,
of course, also can terminate (revoke) the trust at any time and take back any
property that had been transferred to it.
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For practical purposes, it is "business as
usual" for the grantors while alive and healthy. They continue to use and
deal with trust property just as they did before the trust. Indeed, the IRS
refers to this kind of trust as a "grantor trust" and completely ignores it.
The assets of any trust the grantor controls are regarded as the grantor's property
for both estate and income tax purposes.
Some planners recommend using separate but identical trusts for
the husband and wife. When this is done, jointly owned property must be split
up so that half can be transferred into each trust. The principles of trust
operation are not different when each party—married or not—has his or her own,
individual trust. The chief advantages of using a simple living trust are not
dependent on marital status.
Planning for a living trust involves a little time and effort, not to
mention an attorney's fee. So let's examine the features of a living trust
to help you determine whether one would be useful.
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