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Investor Briefs
Asset Management With a Living Trust
A living trust should be considered by any individual with an estate worth more than $100,000 or who owns real property. It is a basic tool used in estate planning that allows the better asset management during the life of the trustor and avoids the lengthy and expensive court-mandated probate procedure.
It is important to have a trust specifically drafted for your estate. There are no "one-size-fits-all" trusts. The trustor generally places all or part of his/her assets into the trust. Consult an attorney when preparing or changing estate planning documents.
A living trust, as the name implies, involves placing the title to assets with a person you trust, who will act in your behalf. The participants in a trust are:
- The Trustor, the person who creates the trust and transfers property into it,
- The Trustee, who receives the assets and manages them on behalf of the Trustor,
- And a Beneficiary, who benefits from the terms of the trust.
There are many terms and conditions imposed by the state and the terms of the trust that the trustee operates under. Under the terms of the law, the trustee must a fiduciary, or a person with a high standard of conduct and must only act for the benefit of the intentions of the trustor. The trust usually contains instructions on how to manage the property during the trustor's lifetime and what to do after his/her death.
A living trust does not protect assets from debt. Under California law, anyone that the trustor owes money can enforce that debt against the assets held in a revocable living trust to same extent as if there was no living trust. Unless you provide otherwise in your trust (the estate pays the debt), the person receiving the assets will be responsible for any debts associated with those assets. There are special provisions that provide limited protection to assets such as "spendthrift" provisions and "special needs" trusts.
A living trust can either use your name or any other designation, but it is suggested that you use your name to avoid transfer taxes and encourage banks and other institutions to honor your instructions for transferring assets. It's also important to remember that the trust is ineffective unless the assets are actually transferred to it. Assets that are not transferred are not covered by the trust and may end up in probate.
Information condensed from "News and Notes," by the Law Offices of Nancy Kapp Ewin.
Review Tax Laws to Gain Benefits
Take the first step towards advance tax planning by reviewing tax law changes featured on the IRS website, www.irs.gov. A little advance planning now could pay off later.
Also for the 2003 tax year, you may make gifts of up to $11,000 per person and exclude the amount from the gift tax. Those receiving the gift are not required to pay taxes on the amount received. The maximum amount for most capital gains taken after May 5, 2003 has been reduced to 15 percent for most individuals.
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