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Where there's a will, maybe there should be a living trust, too

Most of us have heard it a hundred times -- just in the last week, even: Baby boomers are entering retirement. Approximately 10,000 Americans will turn 65 every day for the next 16 years. It is not too late for these soon-to-be retirees to establish an estate plan that will protect their assets and keep the tax obligation low. Many boomers, in fact, may relocate to Texas, because we have neither an estate tax nor an inheritance tax.

An estate plan will not only provide direction to heirs about what will happen to the testator's assets after he dies, but it could also provide for his own care if he becomes incapacitated. Just as a funeral trust can take care of burial costs (we wrote about funeral trusts here), a living trust can take care of expenses for someone who becomes disabled or who simply cannot take care of himself anymore.

A trust is a "living" trust for two simple reasons: The trustor establishes the trust during his lifetime, and the trust takes effect during the trustor's lifetime. Living trusts are also called "inter vivos" trusts. The trustor is the person whose property goes into the trust; settlor and grantor are other terms used to describe the same person.

A trustor can place any kind of property in a trust -- cash, jewelry, an investment fund, an art collection, anything at all. There are two major advantages to putting an asset in trust: First, when the trustor dies, the property will not be included in his estate. That means the property will not go through probate and will not be subject to estate taxes. It also means that the property transfers directly to the heir, the beneficiary of the trust, without going through probate.

Say Josie has an antique car that would make Jay Leno jealous. She establishes a living trust to hold the car but decides not to include her Robert Rauschenberg collage. The trust is written, carefully, to allow Josie to use the car during her lifetime, at which time it will pass to her nephew. In her will she bequeaths the collage to her nephew as well.

What happens when she dies? We'll explain in a future post.

Source: ABC Local/KTRK-TV Houston, "5 reasons you need a living trust," Jan. 21, 2014

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