People are increasingly turning to living trusts because of the flexibility of these estate planning tools. Also known as inter vivos trusts, living trusts permit you to place your assets in the trust while still controlling the property during your lifetime. The trust owns any assets placed in them, but you name yourself as the trustee and make all decisions. They are revocable trusts, meaning you can change beneficiaries, buy and sell property, and otherwise treat the assets as you choose. Once you die, the trust generally becomes irrevocable, meaning it cannot be changed. Assets placed in a living trust do not go through the probate process after your death.
Declaration of Trust
Under the Maryland Discretionary Trust Act (MDTA), you may create a living trust by “transferring property in writing to another person if the document transfers property in a legally recognized manner.” For practical purposes, when creating such a trust, you are the “declarant,” also known as the “grantor.” Under state law, the trust document must identify the property recipient as the trustee, as well as identify the trust beneficiary. That’s the person or persons who will eventually inherit the trust assets. Under the MDTA, the declarant and trustee are the same. You should name an alternate trustee – perhaps a close relative – to handle the trust’s assets after your death and ensure beneficiaries receive them. The trust must state that property is transferred under the MDTA. The trust officially exists once property is transferred into it.
When you place any assets in a living trust, the ownership title must change. For example, if you want to place your brokerage account in a living trust, the title would change from Jane Jones to the Jane Jones Trust. When you make any future transactions in the account, such as selling or buying stock, you can’t simply use your own name. You must sign any documents relating to the account as Jane Jones, Trustee.
If you choose not to put certain assets in the trust or neglect to do so, those assets may go through probate, depending on how they are titled. Even if you place all known assets in a living trust, you still need a will. Without a will, any non-trust property goes to your closest relative, as per Maryland intestate succession laws.
Internal Revenue Service
A living trust is not a tool for tax avoidance. You must report income generated by the trust on your tax return. If you are the grantor and trustee, the IRS allows you to report such income on your tax return, rather than file a separate return for the trust.
Living Trusts and Probate
Probate is the process in which the validity of the dead person’s – or decedent’s- will is determined as valid by the court. In Maryland, the Office of the Register of Wills in each county handles probate. While property placed in a living trust does avoid the probate process after the grantor’s death, for many estates probate is a relatively straightforward matter. Compare the costs of setting up a living trust with the fees associated with probate. Although a living trust bypasses probate, it does not affect the payment of any inheritance or estate taxes. With a living trust, inheritance tax is due within three months of filing the information report by the estate’s personal representative. Inheritance tax on assets going through probate is usually paid by the estate’s administration account and due within nine months of the personal representative’s appointment, according to the Register of Wills.
Living trusts protect your privacy, as the assets in the trust do not generally become a matter of public record as with a will. Maryland does, however, require that a schedule of the trust assets is filed with the Register of Wills.
Living trusts are advantageous for those owning real estate outside of Maryland. When such properties are placed in the trust, after your death the estate may not have to go through probate proceedings in those other states. The Register of Wills suggests placing assets in a living trust if you fear your will may be contested, on the grounds that trusts are harder to challenge for undue influence or incompetency.
Contact an Attorney
While it is possible to create a living trust via a “living trust kit” available online, when you are making decisions about the disposition of your property it is always wise to contact an attorney well-versed in trust and estate matters. Here at Blackford & Flohr, we have helped many people create their own living trust. If you need help, please contact us today to discuss your estate planning needs.