How and why a Living Trust avoids probate 

There is only one way to get the assets out of your name, yet maintain complete control of the assets and not expose your children to exorbitant capital gains taxes. Its called a Living Trust.

Understand, first of all, that a Living Trust is not a piece of paper! Regardless of what some attorney has told you, a Living Trust is not some trick document that you can sign and make all of your estate planning problems go away. Instead, a Living Trust is one of the four methods or techniques of owning or controlling private assets. You are very familiar with three of those techniques. You choose the one you want by the manner in which you name the owner(s) on the title of an asset.

1.  SOLE OWNERSHIP:

Your name and no one else's appears on the title, deed or account as the owner of the asset. That means that you alone own the asset.

2.  JOINT TENANCY (or Joint ownership):

The asset is owned in equal shares by two or more people. The names of each person owning a share of an asset appear on the title or deed of the asset or the account in which the asset is held. Joint Tenancy With Right of Survivorship (JTWROS) is used almost universally by married couples. Often, the adult children are also added. However, non-related persons can also hold assets in joint ownership. Should one of the joint owners die, the asset then automatically re-divides into equal shares between the surviving owners. Last survivor standing ends up with the whole asset in sole ownership.

3. CORPORATION:

The asset is owned by two or more people in equal or unequal shares. Each owner is issued a title called a "stock certificate" that indicates what portion of the asset he/she owns.

The problem is that with all three of above techniques of ownership you must own the asset to control the asset. If you sell the asset or give it to another person you lose control of it. Any under-the-table written or verbal agreement as to whom the new owner must leave or bequeath the assets at his/her death would have no legal merit in court. Thus, all three of these ownership methods are very poor estate-planning techniques. Each leads the owner(s) of the asset straight into Probate Court.

Very few people are familiar with the fourth technique of ownership. It's called a....

4.  TRUST:

Assets held in Trust ownership avoid probate and, when not messed up with a lot of needless legalese, the expensive services of an attorney at death.

A trust is a fictitious entity, and very similar to a corporation or municipality. "Lamb Chop," the hand puppet of the late Shari Lewis was a fictitious entity. Santa Claus is a fictitious entity. Chicago is a fictitious entity. Fictitious entities can have an identity and a personality, even a spot on map if they are a municipality, but they are not real live persons.

However, just as the city, village or township in which you live owns buildings, trucks, snow plows and bank accounts, a trust can own assets in its own name. This right of all citizens to do business under an assumed name or as a fictitious person has been recognized legally in law for nearly 500 years having been ruled legal in Chancery Court of England in 1535 A.D. Your right to create a Living Trust is guaranteed by the United States Constitution. It would require a constitutional amendment to outlaw your trust.

Perhaps the most difficult element of a Living Trust for some people to understand is the fact that an asset can be owned by something other than a real live human being. That is the key to the success of a Living Trust. Those that cannot grasp this concept will probably never completely understand a Living Trust.

You create a trust by instructing your financial custodians (bank, stockbroker, credit union, etc.) to replace the original title, deed or account to the asset with a new title or account that designates that the asset is owned by your trust rather than by you. Your name still appears on the title, but now as the trustee rather than as the owner.

Questions? How to contact Gordon Mead Bennett immediately!

The common link of all fictitious entities

Trusts have one thing in common with corporations, municipalities, puppets and other fictitious entities. They are dumber than a box of rocks! They can't talk, they can't walk, they can't think and they can't reason or any of the other things a human being can do. A fictitious entity requires a mayor, or a president, or a manager, or a board of directors, or a ventriloquist to make decisions for it and guide its destiny.

The manager of a trust is called the trustee. Trustee is just a $300 word thought up by the legal profession that simply means manager and is just one more example of how the legal profession inserts confusing legalese to intentionally bewilder the client.

As the maker of your trust you will draw a simple written agreement with the trustee or manager of your trust to assure that he or she will manage the trust according to your wishes.

But how do you maintain control over assets you no longer own?

You appoint yourself and, if you are married, your spouse as the primary trustees of the trust! That means that as the maker of the trust you get to write rules that allow you as the trustee of the trust to do as you please with the trust assets even though those assets now belong to the trust rather than you.

Questions? How to contact Gordon Mead Bennett immediately!



Creating a trust is a five-minute process

Transferring assets into the trust is simple and easy. It takes about five minutes to transfer an asset into a trust.

It matters not that the asset may be mortgaged. There is really little need to even inform the lender that you have transferred the property from private ownership to trust ownership. The lender is protected by 1) your signature on the mortgage and 2) your pledge of the asset as collateral. It matters little to the lender which technique you choose to title the asset. If you personally do not continue to make the payments the lender will come and get the house as prescribed in the mortgage.

To help justify their $1,500 to $3,000 fees for drawing trust documents, many attorneys attempt to convey the idea that the transfer of assets to the trust is a time-consuming and difficult procedure that will require the attorney’s assistance. Don't believe it!

You don’t need an attorney to transfer assets to a trust any more than you needed an attorney to assist you in opening your checking account. The same procedure used to open a checking account is used to transfer assets to a trust! Your financial custodians will be happy to make the change for you. You need only request it. A single, memorized statement will set the whole process in motion. You simply say to your banker or other financial custodian:

"I would like to open a new account today. It will be in the name of my new Living Trust."

That's all it takes! At that point your financial custodian will pick up the ball and run with it while you sit there and watch. All you are doing is opening a new account, transferring your assets from your old account to your new account, and then closing your old account. In effect, you are simply taking the money out of one pocket and putting it in another.

The financial custodian will quickly complete all the paper work and the only thing you will be required to do is sign your name two or three times in the spaces provided. There are no secret handshakes or hocus-pocus to it; the financial custodian probably goes through the same procedure for three or four customers every week.

Real estate is transferred into the trust with a quitclaim deed that you can pick up at almost any office supply store and then fill out on your dining room table in 10 minutes using information off your present deed or a tax notice. You will then have the quitclaim deed recorded at the county register of deeds office in or near the courthouse.

In so many words the quitclaim deed will say that "for a consideration of less than $100, John and Jane Doe convey the property described herein to the Doe Family Trust, John and Jane Doe, Trustees."

Again, pretty simple, huh?

Assets transferred into the trust are now no longer in your name. Though the maker of the trust - you - dies, the legal owner of the assets - the trust - remains very much alive.

A "successor trustee" (usually one or all of your adult children, some other close relative, or your most devoted friend) appointed in the trust contract by you while you were alive steps in at your death and becomes the new trustee.

It would be the same thing if the president of the Kellogg Company in Battle Creek, Michigan dropped dead tomorrow morning at breakfast. By lunchtime a vice-president would have assumed the presidency and Kellogg’s would go right on churning out Rice Krispies like nothing had happened. A trust works exactly the same way.

The successor trustee has no authority whatsoever while you and your spouse are alive, but at your deaths assumes full power to do as the terms of the trust contract dictate (pay the bills and taxes, then distribute the remainder of the assets to the beneficiaries). The successor trustee cannot, however, change any of the trust’s terms any more than the new president of the Kellogg Co. could change rules set down by Kellogg’s stockholders through the board of directors.

If the affairs of the trust are in good order, this distribution ("giving away") of the assets to the beneficiaries will take perhaps 3 to 10 days and the cost of transfer will probably be less than $50. This cost is incurred entirely by the out-of-pocket expenses of the successor trustee(s). Such items as a quitclaim deed(s) to transfer real estate on to the beneficiary(s), phone calls, postage, perhaps some stationery and envelopes from K-Mart, and a tank of gas in the successor trustee’s Chevy are legitimate expenses that the trust should rightly pick up.

Best of all, your beneficiaries will receive those assets from your trust at their full, stepped-up value at the time of your death.

Questions? How to contact Gordon Mead Bennett immediately!

The simple requirements of a Living Trust contract

You will need to show your financial custodian two or three pages from your trust contract before the financial custodian can transfer your assets to the trust. The two requirements of your trust contract are:

1. The naming of a primary trustee (or manager) to manage the trust
2. The naming of a successor trustee to take over the management of the trust when the original (primary) trustee - you - is dead

Nothing else is required to make a legal trust contract. Two hundred-page trust contracts drawn by attorneys almost always contain pointless financial details, useless asset descriptions, and needless legalese to deliberately confuse the successor trustee and drive him/her back into the arms of the attorney to unscramble the trust and settle the estate at death. The attorney's fee for fabricating this unnecessary service often rivals what the attorney would have charged to probate the estate!

Because more than a few folks judge a package by its size rather than its content, many attorneys "pad the trust package" with needless affidavits, abstracts, letters of intent, indexes, tables of content, and lots and lots of legalese. Such nonessential "stuffing," turned out by the attorney's secretary on a computer in seconds for a few cents extra cost, serves to thicken the packet of trust documents and visually justify the price the attorney must charge to cover his/her office overhead and profit margin.

Invariably, the simpler the trust contract the better the trust you have. Superfluous trust packages packed with needless information require amending each time you change any one of the numerous, needless details or buy, sell or trade an asset. Attorney fees to write such amendments generally range from $150 to $500, depending on the complexity of the amendment. This "make work" philosophy is considered entirely ethical by the legal profession.

It is also important to understand that trust assets are identified by what is written on the titles and deeds of the assets, not what is written in the trust contract. There is absolutely no need for a properly constructed trust contract to formally list the assets owned by the trust. A simple paragraph in the trust contract stating that any asset whose title bears as its owner the name of the trust and its trustees does away with any need to list the assets in the trust contract. It is, however, a courtesy to the successor trustee to clip to the trust contract an informal list that not only identifies trust assets but also the location of the title or deed of each asset.

Listing the assets directly in the trust contract has absolutely no legal merit whatsoever and serves only to 1) needlessly add to the length of the contract for which the attorney can charge, and 2) reveal to your attorney your approximate net worth which gives the attorney a guide as to what he/she thinks you can afford.

You prove that you have complied with the two requirements of naming a trustee and a successor trustee simply by showing the trust contract to your financial custodians. It does not matter if an attorney has drawn the contract or if you have done it for yourself. In fact, the identity of the person or law firm that wrote the contract is none of the financial custodian's business. If your financial custodians are satisfied that your trust contract contains these two basic elements listed above they should be able to transfer the assets out of your name and into the name of your trust within five minutes.