Free Living Trust

It is recommended that you name an ALTERNATE successor trustee to serve if your first choice is unavailable or unwilling to serve. If your first choice cannot serve and you fail to name an alternate, your survivors and the court system will be left to make the decision for you.

You may name one alternate successor trustee to serve alone or two alternate successor co-trustees to serve together.

There may be occasions when you may want to amend a Living Trust after the Trust has become "operational." For example, you may want to change a beneficiary, name a different Trustee, or add a new provision.

There are several ways to amend the Trust. For minor deletions and/or additions, see the "Living Trust Amendment" document. For major and/or numerous changes, however, it is recommended that the Trust be "amended and restated" in its entirety. For such cases, this document offers an optional sentence that can be included in the Living Trust. This sentence provides that the Trust agreement is "amending and restating" the existing Trust agreement. By including this reference to the existing Trust agreement, the new agreement has the effect of simply continuing the current, existing Trust which was established under the prior agreement, but with the desired changes.

This "continuation" means that a new trust is not being created, and therefore, it is not necessary to transfer assets from an "old" trust into a "new" trust. In order to amend and restate the Trust, you must deliver to the Trustee an appropriate written amendment/restatement, signed by the Grantor and the Trustee, that restates the Trust to incorporate the desired changes.

Operational Living Trust
A Trust is not considered "operational" until it has been signed and assets have been transferred into the Trust. Therefore, it is not necessary to use this "amending" feature if the prior trust agreement was signed, but not made operational by transferring assets into the trust. Instead, simply create the new trust and revoke the old trust (see the "Living Trust Revocation" document). A lawyer should be consulted regarding any questions.

When you die, the Trust provisions designate the beneficiaries who will receive your property, much in the same manner as a will. At your option, these provisions can include specific distributions, distributions of all tangible personal property, and immediate distribution of the remaining trust assets. These provisions also can include retaining those assets within the trust for the benefit of the surviving spouse and/or the minor children.

The successor Trustee will carry out these provisions in a role similar to that of an Executor.

You may wish to require that your Trustee obtain a bond. A bond is similar to an insurance policy in that it covers against losses from misappropriation of assets by the Trustee.

However, most people choose not to require a bond because bonds:

1. are expensive,
   
2. frequently are not necessary if a bank is the Trustee because banks are already bonded, and
   
3. may necessitate greater court involvement.

Specific Distributions can include (a) intangible personal property, (b) tangible personal property, or (c) real property. The following are examples of these categories of specific bequests:

1. Intangible personal property.
   
   • An amount of cash
     
   • An entire bank account
     
   • Stocks, bonds or an entire brokerage account
     
   • A patent or copyright
     
   • Contract rights, such as the right to receive payments from a third party under a promissory note or an annuity
     
   • Business interests in a privately held corporation or partnership
   
   
2. Tangible personal property.
   
   • Jewelry
     
   • Heirlooms
     
   • Antiques
     
   • Vehicles
     
   • A boat, snowmobile, motorcycle, or airplane
     
   • Clothing and personal effects
     
   • A household item OR all household furnishings

3. Real property.
   
   • House or condominium
     
   • Cabin or vacation home
     
   • Bare lot
     
   • Farm land

Including a sentence in your Living Trust that you have no children simply makes it clear that you have no children. You may think that it will be obvious to your survivors that you have no children. However, if you die a number of years after your spouse, and if you do not have other close relatives, and/or if you were involved in more than one marriage, your survivors may not be sure whether or not you had children.

If you don't include the sentence, your survivors may not know whether the failure to mention children in your Living Trust means you had no children or whether you had children but just didn't mention them. If you have children, there may be a requirement under your state's law that the children be notified about your Living Trust even though they will not receive any inheritance.

A trustee is the person or organization named in a trust who has the responsibility of carrying out the terms of the trust, including managing the trust's assets and making distributions to the beneficiaries.

The trustee should be dependable and capable of handling financial matters. A business background may be helpful, but is not required. Many banks have trust operations that provide trustee services, but of course, the bank will charge for its services.

Generally, the grantor of a living trust serves as the initial sole trustee until such time as (i) the grantor wants to turn over the trustee responsibilities to a successor trustee, (ii) the grantor is physically or mentally unable to serve as trustee, or (iii) the grantor dies.

Note: In Texas and Wisconsin, exercise caution before designating the Grantor as the sole Trustee and the sole lifetime beneficiary. This is because, in those states, the trust may be considered "void" where all three interests -- grantor, trustee, and beneficiary -- "merge" and therefore the trust has no legal significance. Consult an attorney for advice.

If a bank's trust department or other institution is selected as the Trustee, it is automatically understood that the Trustee will charge a fee for its services. However, if a family member or friend is chosen, there may be some dispute whether you intended for that individual Trustee to receive compensation for his or her services.

This optional provision clarifies your intent by stating that the Trustee IS entitled to reasonable compensation for his or her services, and is entitled to reimbursement for out-of-pocket expenses incurred in the performance of the Trustee's duties.

Your estate is composed of all of your assets at the time of your death including items that you may not have considered, including:

• Joint Property
  
• Personal Property
  
• Life Insurance, Retirement Accounts and Annuities

The language of a Trust typically provides for payments and distributions of trust assets "to," or "for the benefit of," a beneficiary. However, it is often useful to clarify your intent that the Trustee is authorized to make payments directly to others who are providing something of value to the beneficiary.

The most common example is that the Trustee can make a payment directly to a college to cover a child's tuition. By including specific authority in the Trust for the Trustee to make such payments to others, the Trustee is better protected against claims that required payments to a beneficiary were never received by that beneficiary.

This document allows you to distribute the remaining trust assets by selecting from a variety of alternatives. For example, you can choose to distribute the remaining trust assets to your children. If you have minor children, you can select a Trust for Children.

You also have the options of distributing the remaining trust assets to:

1. "one beneficiary" who may be a person (or a charity) other than a child, or
   
2. "several beneficiaries" in shares that are stated in percentages.

During your lifetime, payments of the net income of the Trust are made to you at fixed intervals. The amount of the payments can be changed from time to time at your request.

When you die, the Trust provisions designate the beneficiaries who will receive your property, much in the same manner as a will. At your option, these provisions can include specific distributions, distributions of tangible personal property, and immediate distribution of the remaining trust assets. These provisions also can include retaining those assets within the Trust for the benefit of the surviving spouse and/or the minor children.

The successor Trustee carries out these provisions in a role similar to that of an Executor.

Federal Estate Tax is a tax imposed at the federal level (in addition to possible estate and/or inheritance taxes imposed at the state level) for the privilege of transferring property at death.

This tax is imposed whether the assets pass under the Decedent's Will or Trust, or by the state laws of intestacy (without a Will). The tax is based on the total value of ALL assets owned by the Decedent at death, plus taxable gifts made during the Decedent's lifetime (the Decedent's "Gross Estate").

The 2010 Tax Act brought renewed the federal estate tax, but at much higher exclusion amount (the amount each person can transfer in total during life and at death without paying transfer tax) than previously and decreased the top marginal tax rate. For 2011, the estate tax exclusion amount is $5 million with a top tax rate of 35%. The exclusion amount will be adjusted for inflation in 2012.

Unlike state laws that prohibit you from disinheriting a spouse, there is no requirement that you provide for your children in your Living Trust. However, your intentions should be clearly stated in your Living Trust to avoid challenges by disappointed, disinherited children.

Many states "protect" spouses with laws that permit a spouse to receive a portion of your estate even though your Pour-Over Will and/or Living Trust do not provide for your spouse. If the intent in the Pour-Over Will and/or Living Trust being created is to "disinherit" your spouse, you should consult with a lawyer regarding the legal rights of your spouse to receive property from your estate.

"Disinheriting" means to deprive another person (an heir or spouse) of property that would have been distributed to that person under the laws of intestacy (dying without a valid will). An agreement between you and your spouse, signed prior to marriage, may permit you to disinherit your spouse.

If substantially all of your assets will be transferred to a living trust, it is common practice for you to provide for distributions upon your death to your family, particularly your spouse (if married) and your children (if any), or in the case of a deceased child, to such child's children (if any). Such persons are said to be "the natural objects of your (the Grantor's) bounty."

If such persons exist but are not included in the Trust, a question may arise as to whether you simply made a mistake. Further, such excluded persons may attempt to challenge the Trust on this very basis, that is, that you simply made an error in excluding them from the Trust.

If you intend to exclude someone that might expect to be included in the Trust, it is advisable to include a statement in the Trust that makes it clear that the omission was intentional. Although this type of exclusion generally applies only to individuals, this provision can also be used to list organizations that will be excluded.

There are several important factors to consider in creating and using a Living Trust.

1. Use of this Document as a Planning Device. Creating a Living Trust involves careful planning and consideration. Not all of the steps, including the very important step of transferring assets, can be completed while sitting at a computer. Although the interview will guide you through the process of creating a valid Living Trust document, it may be appropriate to contact a lawyer regarding legal questions. In fact, it is expected that many people will use the Living Trust document as a planning tool, especially if there are special circumstances or if your estate may exceed $5,000,000 at your death. If that is the case, then after drafting an initial document as an educational device, you may wish to finalize the Living Trust document with the aid of legal counsel.

2. Transfer of Assets into the Trust. In addition to creating and signing the Living Trust document, assets must be transferred into the trust. A Living Trust only applies to the assets that are actually transferred into the Trust. For additional information on this very important point, read the Funding the Trust topic.

3. Pour-over Will. The use of a Living Trust does not eliminate the need for a will. You may have assets that you do not wish to transfer into the Living Trust. For example, it may be preferable not to transfer some personal property such as vehicles and a personal checking account. A Pour-Over Will serves to handle the distribution of such assets upon your death by directing that such assets be transferred to the Trustee of the Living Trust for final distribution. It is highly recommended that a Living Trust not be signed unless a Pour-Over Will is also properly signed.

4. Tax Consequences. Generally, the income earned by the assets transferred into your Living Trust will be taxable to you on your personal income tax return in the same manner as if the assets continued to be held personally by you during your lifetime.

5. Estate Planning. The estimated value of your assets, minus the estimated value of your liabilities is critical information in planning your estate. A high value -- more than $5,000,000 in value at your death -- suggests that more complex estate planning techniques may be required to minimize federal estate taxes.

6. Federal Estate Tax. The 2010 Tax Act brought renewed the federal estate tax, but at much higher exclusion amount (the amount each person can transfer in total during life and at death without paying transfer tax) than previously and decreased the top marginal tax rate. For 2011, the estate tax exclusion amount is $5 million with a top tax rate of 35%. The exclusion amount will be adjusted for inflation in 2012.

7. Joint Living Trust. For married couples desiring the advantages of a Living Trust, another alternative is to create a Joint Living Trust. For additional information, read the Joint Living Trust topic.

In addition to creating and signing a Living Trust document, assets must be transferred into the Trust. A Living Trust only applies to the assets that are actually transferred into the Trust. Assets can be transferred both at the time of the creation of the Trust and also at later times.

Separate transfer documents must be used for this purpose because the Trust document itself does not contain any language of conveyance or any list of assets. In most cases, the new named owner of the assets will be the trustee of the Trust.

For example, an account for Janice J. Jones who has created a trust dated 11/27/2006 could be transferred into the Trust by changing the account name to "The Trustee of the Janice J. Jones Living Trust dated 11/27/2006."

Heirs-at-law are persons who would be entitled to the assets of your estate if you died without leaving a valid Will or Trust. The laws of each state define who are the heirs of persons who die as residents of that state. Although state laws vary somewhat, in general, your heirs are those persons who are most closely related to you by blood or adoption.

For example, the priority in most states is that your heirs are only your children, if you have children, with grandchildren or other descendants taking the share of a child who dies before you do. Only if you have no descendants will the definition of an heir be expanded to include your parents (either one), then your siblings (if any), with nieces and nephews (possibly other descendants of your siblings) taking the share of a deceased sibling. If your parents and all of their descendants are deceased, the circle is expanded to include your grandparents and all of their descendants. If no relatives at all can be found, your estate then "escheats" to your state of residence � generally, a rare occurrence. Because heirs are usually defined by state law to be related to you only through blood or adoption, your spouse is usually not your heir. But keep in mind that there are other kinds of state laws that protect spouses by guaranteeing your surviving spouse all or a portion of your estate.

If you are married and select the "heirs-at-law" option, only YOUR heirs will benefit unless you specifically choose to also benefit your spouse's heirs by allocating a percentage of your estate to your spouse's heirs.

If the Trust is being maintained for the benefit of more than one beneficiary, each of which is entitled to a specific share of the Trust, the Trustee will have to keep careful records of each beneficiary's share. Each such share typically earns income and pays its proportionate share of the Trust expenses.

The optional power to hold trust assets as a single fund allows the Trustee to maintain a single fund for joint investment and management purposes of the entire Trust, without the need for physical segregation of each beneficiary's share.

For example, one brokerage account and one bank account could be used by the Trust instead of multiple accounts, one such account for each beneficiary. Instead of establishing multiple accounts with brokers and banks, it is the Trustee who keeps a careful accounting of the trust shares. The Trustee allocates to each beneficiary's share a proportionate share of the trust's total income and expenses, and subtracts from each beneficiary's share the payments and distributions made to that beneficiary.

Allowing the Trustee to hold assets as a single fund often reduces the expense of operating the Trust.

A Joint Living Trust can be created by a person and that person's spouse. In some cases, this method is preferable to creating two separate Living Trusts, especially where assets to be contributed are held jointly and could not easily be divided to be placed into two separate trusts. Another advantage is that the joint trust is created in a single document rather than multiple documents.

Typically, the Joint Living Trust provides for both spouses, who are the Co-Grantors, to serve as the initial Co-Trustees. They serve for such time as they are able and willing to manage the assets of the Trust during their joint lifetime. After the death, "disability" or voluntary resignation of one, the other can continue as Trustee. When neither Grantor serves as Trustee, a successor Trustee takes over the management of the Trust.

Most states permit an individual to own property with another individual in a manner known as "joint with rights of survivorship." In such a case, when the first joint owner dies, the property passes automatically to the surviving joint owner, even if the first owner attempted to give the property to a third person through his or her will.

In many cases this never becomes a problem because the joint property is owned between spouses, and the Wills of the spouses provide that the property owned by the spouses should be given to the survivor of them anyway. In those situations, there is no conflict between the ownership of the joint property and the provisions of the Wills.

On the other hand, if an individual owns property with another person "joint with rights of survivorship" and wants the property to pass to a third person under the Will, a lawyer should be consulted.

If property held "joint with rights of survivorship" is transferred into a trust, such survivorship status may be lost. An attorney should be consulted in connection with such a transfer.

Life insurance, annuity, and retirement plan agreements (and similar agreements) are contracts that permit the owner to name those who will receive the proceeds of such agreements either as primary or alternate beneficiaries.

Your Living Trust does NOT determine the beneficiary (recipient) of the proceeds of these agreements. Thus, when preparing your Living Trust, you should review the agreements to make sure that the beneficiary designations of such agreements correspond to your wishes described in your Living Trust.

A Living Trust (also known as a "revocable trust") is a trust created by a person (known as the "Grantor") for use during that person's lifetime. It provides for payments of income for the Grantor and the distribution of the remaining assets of the Trust upon the Grantor's death. The Living Trust also includes an option which allows the Grantor to amend or revoke the Trust at any time. In order to amend the Trust, the Grantor must deliver to the Trustee an appropriate written amendment or restatement, signed by the Grantor.

Typically, a Living Trust includes provisions that allow the Grantor, who often serves as initial Trustee, to manage the assets of the Trust until such time as the Grantor:

1. becomes "disabled" (unable to manage his or her financial affairs);
   
2. simply prefers to have someone else (perhaps a bank's trust department) manage his or her affairs; or
   
3. dies.

Payments
During the Grantor's lifetime, payments of the net income of the Trust are made to the Grantor at fixed intervals. The amount of the payments can be changed from time to time at the request of the Grantor.

When the Grantor dies, the Trust provisions designate the beneficiaries who will receive the Grantor's property, much in the same manner as a will. At the option of the Grantor, these provisions can include specific distributions and distributions of tangible personal property before the distributions of the remaining trust assets. The successor Trustee carries out these provisions in a role similar to that of an Executor. These provisions also allow the Grantor to include a trust share that will be maintained for the benefit of the Grantor's minor children through a trust for minor children.

Advantages of a Living Trust
The Living Trust is often viewed as a preferable alternative to the Will. Some of the perceived advantages of the Living Trust relate to privacy, reduced probate costs, and management of assets. For more information, see the Trust vs. Will Comparison topic. And for a review of what to consider when deciding on a Living Trust, see the Factors to Consider topic.

Note: In Texas and Wisconsin, exercise caution before designating the Grantor as the sole Trustee and the sole lifetime beneficiary. This is because, in those states, the trust may be considered "void" where all three interests -- grantor, trustee, and beneficiary -- "merge" and therefore the trust has no legal significance. Consult an attorney for advice.

Note: This trust is not appropriate for estates (including life insurance proceeds and retirement plans) which exceed the federal estate tax applicable exclusion amount ($5,000,000).

Related Help Articles

Is a Living Trust Right for You
Benefits of a Living Trust
Avoiding Probate -- Wills vs Living Trusts
How to Amend a Living Trust
Revocable Trusts vs. Irrevocable Trusts

Occasionally, the Trustee may consider it appropriate to make a loan of Trust assets to a beneficiary. For example, the beneficiary may be ready to purchase a home or a business and could greatly benefit from a Trust distribution, but he or she is not scheduled to receive such a distribution from the Trust for another year or two.

By including this optional power, the Trustee has the flexibility to advance funds, in unusual circumstances, to a beneficiary before that beneficiary would otherwise receive those funds.

The advance would be in the form of a loan which the beneficiary is obligated to repay with interest. However, the Trustee may allow the beneficiary to repay the loan using money that the beneficiary would otherwise receive from the Trust.

Typically, a Living Trust includes provisions that allow the Grantor, who often serves as initial Trustee, to manage the assets of the Trust until such time as the Grantor:

1. becomes "disabled" (unable to manage his or her financial affairs),
   
2. simply prefers to have someone else (perhaps a bank's trust department) manage his or her affairs, or
   
3. dies.

Note: In Texas and Wisconsin, exercise caution before designating the Grantor as the sole Trustee and the sole lifetime beneficiary. This is because, in those states, the trust may be considered "void" where all three interests -- grantor, trustee, and beneficiary -- "merge" and therefore the trust has no legal significance. Consult an attorney for advice.

Including a sentence in your Living Trust that you are not married makes it clear that you do not have a spouse. You may think that it will be obvious to your survivors that you did not have a spouse. However, if you do not have close relatives, and/or if you were married at one time (perhaps a long time ago), your survivors may not be sure whether or not you have a spouse.

If you don't include the sentence, your survivors may not know whether the failure to mention your marital status means you had no spouse or whether you had a spouse but just didn't mention it.

In addition to the standard powers given to the Trustee, it is often desirable to provide the Trustee with specific, additional powers:

Holding Assets as a Single Fund

Compensation for Trustee

Making Loans to Beneficiaries

Distributing Assets to Benefit a Beneficiary

Personal Property is either tangible or intangible.

Tangible personal property includes jewelry, furniture, cars, and other items that have a physical essence. Intangible personal property includes cash accounts, stocks, bonds, and other similar assets that are nonphysical. A coin is tangible personal property, while 25 cents in a checking account is intangible personal property.

Some Grantors want to make sure that certain items of their tangible and/or intangible personal property are given to specific persons.

A Pour-Over Will is a specialized will that is used as a supplementary document to the Living Trust. Its primary function is to "pour over" the Will writer's remaining assets (at the Will writer's death) into the Will writer's Living Trust.

A Pour-Over Will includes a standard provision to name an Executor (Personal Representative in some states). It also includes an optional provision to nominate a Guardian, if the Will writer has minor children. Instead of the usual provisions that provide for the distribution of specific bequests, the Pour-Over Will simply distributes all of the Will writer's remaining assets to his or her Living Trust. The Living Trust then distributes that remaining property, together with the existing Trust assets, in accordance with the distribution provisions of the Living Trust.

The Pour-Over Will must be signed with the same formalities as other Wills.

The Living Trust document includes a provision for the protection of the Beneficiaries of the Trust, if a Children's Trust is created. The purpose of this provision is to prevent the Beneficiaries from impoverishing themselves by "selling" or "assigning" their interests in the trust to third parties.

For example, a 19-year-old might be tempted to "sell" or "trade" all or a portion of his or her interest in a trust for an expensive sports car. This provision does not prevent the 19-year-old from making a deal with the car dealer, but it does prevent the car dealer from enforcing the deal against the Trust. Sometimes these provisions are known as "spendthrift" provisions.

The Living Trust offers a unique planning opportunity for parents with minor children. Assume you leave your remaining trust assets to your spouse, if your spouse survives you. If your spouse does not survive you, this document allows you to provide a trust for your children.

You can provide that all of the remaining assets of the Trust will be retained by the Trustee for the benefit of your children, or you can provide that a percentage of the remaining assets of the Trust will go to a named beneficiary, with the remainder to the Children's Trust.

Providing for a trust for children can be appropriate if you:

1. have no children but intend to have children in the future,
   
2. have minor children, or
   
3. have children who are no longer minors, but who have not yet reached an age at which it is appropriate for them to receive a large distribution of your assets.

The "remaining trust assets" is a term used in the Living Trust that is similar to the term "residuary estate" that is used in Wills. The remaining trust assets include the Grantor's assets that remain after paying debts and expenses and making distributions of specific bequests. In most Living Trusts, the remaining trust assets include most of the assets.

1. The Living Trust should be signed by both the Grantor and the Trustee(s). For states other than Florida, it is recommended (and may be required if real property is included among the trust assets) that these signatures be notarized; however, unlike a will, no witnesses are necessary. However, in Florida, a Living Trust must be signed with the same formalities required for the signing of a will (see provisions 9 - 14 below).

2. The date should be filled in on the first page of the document, and in the signature areas at the end.

3. You should initial on the bottom margin of each page of the document. This prevents the subsequent substitution of pages.

4. After signing the Living Trust document and creating the Trust, the next step which must be taken is to legally transfer specific assets into the Trust. The Trust provisions will only apply to assets that have been placed into the Trust. Assets can be transferred at the time of the creation of the Trust and/or at later dates, but it is recommended that assets be transferred as soon as possible after the Trust is signed. For a review of methods used to transfer specific types of assets into the Trust, re-read and/or print the Transferring Assets into the Trust topic, or see the "Individual Living Trust Funding Worksheet" document.

5. The use of a Living Trust does not eliminate the need for a will. The Grantor may have assets that he or she overlooked, or that he or she purposefully does not wish to transfer into the Living Trust. For example, it may be preferable not to transfer some personal property such as vehicles and a personal checking account. A Pour-Over Will is useful to transfer such assets to the Trustee of the Living Trust for final distribution. IT IS HIGHLY RECOMMENDED THAT A LIVING TRUST NOT BE SIGNED UNLESS A POUR-OVER WILL IS ALSO PROPERLY SIGNED BY THE GRANTOR.

6. The original of the Trust should be kept in a secure location such as a safe deposit box at a bank. A photocopy should be given to the named Trustee if he or she is not the Grantor. A third copy could be kept in the Grantor's home files. The Grantor may wish to provide a copy to his or her lawyer and/or to the person named as successor Trustee. However, before distributing such copies, the Grantor should consider that it may become awkward to later retrieve these copies if the Grantor decides to change the designation of successor Trustee.

7. The Trust includes provisions which reserve to the Grantor the right to revoke or amend the Trust. In order to do this, the Grantor must sign and deliver to the Trustee an appropriate written revocation or amendment.

8. If you indicated that your property or assets should be distributed in percentages, it is very important that each percentage section total equals 100%. Check the printed totals before signing the Trust.

   FLORIDA ONLY (9 - 14):
   

9. This Living Trust is not valid unless it is signed by a Grantor who is of "sound mind" and of the minimum age for this state. In most states, the minimum age is eighteen. Some states permit an individual below the minimum age to sign a Living Trust if the person is married or in the military. Being of "sound mind" requires that the Grantor: (a) know that he or she is signing a Living Trust, (b) know the general nature and extent of his or her property, and (c) know the descendants or other relatives that would ordinarily be expected to share in the estate.

10. If the Grantor is unable to sign due to physical disability, another person may be able to sign on behalf of the Grantor, in the Grantor's presence, and at the express direction of the Grantor. However, this document does not provide the necessary language for another person to sign for the Grantor. For assistance with this procedure, a lawyer should be contacted.

11. The Living Trust should be signed by the Grantor in the presence of three DISINTERESTED adult witnesses and a notary public. Many states require only two witnesses, but the signature of a third witness provides some protection against the possibility that one of the witness' signature will be invalid for some reason. For example, a person should not be a witness if that person is a beneficiary under the Living Trust. In most states, if a beneficiary's signature is counted in order to satisfy the minimum number of witnesses, then the Living Trust is not necessarily invalidated, but that "interested witness" may not receive a share of the estate any larger than if the Grantor had died without a trust or will.

12. All of the witnesses must watch the Grantor sign this Living Trust. The Grantor should verbally declare that the document is intended to be his or her Living Trust, but the witnesses need not read the Living Trust or know of its contents.

13. Each witness must sign his or her name with the Grantor and the other witnesses present. The witnesses should be satisfied that the Grantor willingly signed the document as a free and voluntary act, and that the Grantor was of full age and sound mind.

14. The Florida Self-Proving Affidavit is a document which should be attached to the end of the Living Trust, and which contains the Grantor's acknowledgment and the affidavit of the witnesses, made before a person authorized to take acknowledgments and administer oaths. The affidavit recites that the requisite formalities were observed in signing the Living Trust. Although attaching the affidavit has nothing to do with the legality of the Living Trust itself, it can speed the admission of the Living Trust to probate (if necessary) after the death of the Grantor because it eliminates the need to have a witness appear at the probate proceeding to testify that the formalities in signing the Living Trust were followed. The witnesses may not be available later when they are needed. A self-proved Living Trust may be admitted to probate without additional witnesses or affidavits, but it is still subject to contest on such grounds as undue influence, lack of testamentary capacity, or prior revocation.

A "specific distribution" is a gift of cash, a specific item, or a category of items to a named person or organization before the bulk of the Trust is distributed. For example, a wedding ring, $1,000, an antique, a car, or "all of my remaining tangible personal property" can be given.

Some persons (Grantors) have specific items that they want to give to a specific person or organization. For example, a mother may want to make sure that her jewelry goes to her daughter, and grandparents may decide that they would like to give $1,000 to each of their five grandchildren. Specific distributions are usually followed by other provisions that distribute the remaining assets of the trust.

You are also allowed (next) to give all of your (remaining) tangible personal property (vehicles, clothing, furnishing, etc.) apart from the remaining trust assets.

Example: Larry wants to give $5000 to his favorite charity (but only if his wife dies before he does), all of his remaining tangible personal property to his wife Cheryl if she survives (otherwise to his children) and the remaining assets of the Trust one-half each to his wife and his children. Therefore, Larry selects "Yes" to specific distributions, but indicates that the $5000 gift should be made "only if Cheryl is not living at my death." Next, he gives all of his remaining tangible personal property to Cheryl (so that she can continue to use the vehicle and furniture), but if she is not surviving at that time, then to his children. Finally, he gives the remaining trust assets to "several beneficiaries", which he identifies as Cheryl (50%) and outright to his children (50%).

You do not know whether you will survive your spouse and/or your children. However, you can make specific distributions contingent on who is surviving at the time of your death.

For example, you may wish to give $5,000 to a favorite charity even if your spouse and children are living. You may wish to give your personal effects and household furnishings to your adult children, but only if your spouse is not living. You may wish to give your coin collection (which your spouse never cared for) to a friend, but only if your children are not living. And finally, you may wish to give a large cash bequest to your alma mater college, but only if neither your spouse nor your children are living.

Note: The circumstance that you choose will apply to all specific distributions.

If you are presumed to have died first, your spouse's estate will receive any bequest given to your spouse in your Will or Trust. These bequests will then pass to your spouse's beneficiaries under your spouse's Will or Trust.

If, instead, your spouse is presumed to have died first, any bequest given to your spouse in your Will or Trust instead will pass to the alternate beneficiaries of your Will. Each spouse can state that the other spouse is presumed to have died first.

A successor trustee should be named to serve when the initial trustee, after having initially served for some period of time resigns, or otherwise becomes unable to serve as trustee, or dies.

A good choice in many situations is to have an individual and a bank serve together as co-trustees. The individual can be a family member who is close to the beneficiaries and knows their needs. The bank may have a better background for handling investments, preparing tax returns, and providing accounting.

If the trust will include a children's trust that will take effect at some point, it is recommended that you NOT choose one of the children as a trustee, even if that child is of adult age, because doing so can lead to conflicts among the children regarding distributions.

Note: In Texas and Wisconsin, exercise caution before designating the Grantor as the sole Trustee and the sole lifetime beneficiary. This is because, in those states, the trust may be considered "void" where all three interests -- grantor, trustee, and beneficiary -- "merge" and therefore the trust has no legal significance. Consult an attorney for advice.

This document allows the user to include language which requires a named beneficiary to survive you by at least thirty days in order to receive a distribution. This provision is sometimes included because, if the named Beneficiary dies within thirty days after you, you may prefer that the distribution pass to your other beneficiaries, rather than to the persons named in the Beneficiary's own will or trust.

In fact, even if the Beneficiary's beneficiaries are acceptable to you (assuming that you know who they are or care who they are), by including this survival requirement, you can avoid having the distribution pass through the Beneficiary's estate, with possible death taxes assessed in that estate, before reaching the ultimate recipient.

The following describes how various assets are transferred into the Living Trust:

• Tangible personal property -- can be transferred into the Trust by using a Bill of Transfer (See the "Bill of Transfer" document).
  
• Bank accounts -- can be transferred into the Trust by using the appropriate form supplied by the bank. (See the "Trust Letter to Bank or Broker" document.)
  
• Stocks or bonds in a brokerage account -- can be transferred into the Trust by using the appropriate broker form.
  
• Stocks or bonds in certificate form -- can be transferred into the Trust by using a Bill of Transfer document. Consult your broker for assistance. (Also see the "Trust Letter to Bank or Broker" document.)
  
• Vehicles can be transferred into the Trust by using a change of title form. Contact your local Motor Vehicle Department for assistance.
  
• A life insurance policy -- can be transferred into the Trust by using a change of ownership/beneficiary form. Contact your insurance agent for assistance. (See the "Change of Beneficiary Letter" document.)
  
• An IRA or pension plan -- can be transferred into the Trust by using a change of ownership/beneficiary form, but it is not recommended. Contact your plan administrator or a lawyer for assistance.
  
• Real estate -- can be transferred into the Trust by using a deed. Contact a lawyer for assistance. (Also see the "Trust Letter to Mortgage Lender" document.)
  
• Business interests -- can be transferred into the Trust through various means. Contact a lawyer for assistance.
  
• Property that is jointly held -- (for example, real estate held jointly by spouses) can be transferred into a trust, but the process may require more careful planning because of the joint ownership.

The Children's Trust provides money for the health, education, maintenance, and support of your children until the youngest child reaches an "adult" age. Presumably, this is the same way that you would have provided for your children if you had survived: supporting all of them out of a common "pot" of assets according to each child's individual needs until the youngest one becomes independent. Often age 25 years is used because it offers the children an opportunity to attend college and "settle down" before receiving their trust shares outright.

When the youngest child reaches the specified "adult" age, the trust is divided into equal shares for the children and either:

1. distributed immediately, or
   
2. distributed in three installments.

Under the second option, Dave might specify that the final distribution should be made in three installments at ages 25 years, 28 years, and 31 years. Now when Justin attains age 25 years the trust is divided into three equal shares, one for each child. Joel receives two-thirds of his share (1/3 because he has attained age 25 years and 1/3 because he has attained age 28 years), and Jay and Justin will each receive one-third of their respective shares. All three will receive their remaining shares as they attain the appropriate ages.

If, at your death, the children are already beyond the age established in the trust for their final distribution, the assets will be distributed outright to them, and the children's trust will be avoided as unnecessary. The trust for children also includes provisions to provide for the possibility that the children will not be living at the time of final distribution of the trust assets.

The Living Trust or Joint Living Trust are often viewed as preferable alternatives to the Will. Some of the perceived advantages of the Living Trust are as follows:

1. Privacy. A Living Trust is more private. Under state law, a will is admitted to probate after the Will writer dies, so that the terms of the Will can be administered. (Under certain circumstances, families with very small estates may be able to use abbreviated probate procedures, or avoid probate entirely, in which case it is not necessary to admit the Will to probate.) "Probate" refers to the court procedures that:
   1. determine the validity of the Will
      
   2. deal with potential Will challenges,
      
   3. resolve the claims of creditors of the decedent, and
      
   4. ultimately distribute the decedent's assets to the beneficiaries.
   
   As a result, the Will becomes part of the court records that can be inspected by the public upon request. In contrast, a Living Trust is administered by the Successor Trustee usually without court involvement, and normally does not become a public record. Thus, the terms of the Living Trust, including the identities of the beneficiaries and the manner in which the Grantor's assets will be distributed, remain private.

2. Reduced probate costs. A Living Trust may avoid at least some of the perceived "evils" of the probate process. A Will is subject to a court administered process known as "probate." This process takes time (generally, six months to three years), and involves court costs, executor fees, and lawyer fees. The cost of probate can vary greatly, depending on state law; the cost may range from 2% of the amount of the decedent's gross assets to 10% or more in some states. However, the costs associated with administering the trust assets after a Grantor's death, including the obligation to prepare various tax returns, account for trust assets, pay the Grantor's debts, and make required distributions, may be similar in amount to the costs of probate. Therefore, it is difficult to predict whether the amount of savings that might result from the use of a Living Trust will be more than a minimal amount.

3. Management of property. A Living Trust offers a mechanism for allowing another person or organization to manage all or some of your assets if you become unable to do so, or if you simply prefer to "have someone else do it." Thus, a Living Trust may serve as an alternative to a conservatorship or guardianship.

An accounting is a report by the trustee that shows the values of the trust assets as of a specific date (usually the last day of a month). The accounting also shows the income and expenses of the trust for a specific period of time. For example, an "annual" accounting for 2010 would show the values of the trust assets on December 31, 2010, and the income and expenses of the trust for the 12-month period ending on December 31, 2010.

The accounting is needed so that income tax returns, if required (and they usually are), can be filed. The accounting also serves the very important purpose of allowing the beneficiaries the opportunity to review the performance of the trustee. For example, beneficiaries may want to offer comments to the trustee on the rate of return earned by the assets.

An accounting should be required at least annually, but it may be preferable from the beneficiaries' perspective to receive reports monthly, or perhaps quarterly. Bank trustees are well suited to provide reports more frequently, but individual trustees (especially ones not receiving compensation) are usually not as able to provide monthly or quarterly reports.

When selecting a trustee for the children's trust, it is recommended that you NOT choose one of the children, even if that child is of adult age. The reasons are several:

1. that child has a conflict of interest in distributing money to his or her siblings which depletes his or her own share,
   
2. the child becomes the "bad guy" if he or she refuses to honor a request for money from his or her siblings, and
   
3. there is some risk of adverse tax consequences to a trustee who is also a beneficiary of the trust.

Generally, most states protect a trustee from personal liability in the absence of fraudulent conduct or bad faith (deliberate wrongdoing). However, by specifically including a provision that relieves your trustee from personal liability, your intentions are clear and your trustee may be more willing to accept your request to serve.

Most Grantors decide to waive (not require) a bond because:

1. The Trustee chosen is trusted, and
   
2. Bonds:
   1. are expensive,
      
   2. are usually not necessary if a bank is the Trustee because most banks are already bonded, and
      
   3. require greater court involvement in some states because the court must ensure that the bond is handled properly.