Living Trust Examples

How about some living trust (or testamentary trust) examples?


Hopefully you've learned at other places on this site what a living trust is and its advantages and disadvantages. If so, that's great. But, you probably still trying to put it all together for your particular situation. At the end of the day, you need to synthesize all the information and reach a conclusion as to whether a living trust is for you.


Maybe some examples of the type of people who need or don't need a living trust would help. This page provides five living trust examples. The first two are people who probably do not need a living trust. The last two are people who probably would benefit from a living trust. The one in the middle (Peter and Sue Thompson) are…well, in the middle. They could go either way.


Read through the living trust examples below and you'll get an idea of the issues you should think about in your own situation.


Mary Jones -- Mary is in her early 20's, single, never married, no children. Mary is a student with less than $20,000 in assets. Her assets consist of a used car, a small bank account, clothes and various other household and personal items. If she were to die in the near future, she wants to leave all her assets to her mother.


Clearly, Mary does not need a living trust. In fact, she probably could get by without a will simply by adding her mother to the title of her car and as joint owner of her bank account. Joint ownership has its perils, but Mary's mom is trustworthy and so the risk is small. In any event, odds are that absent a will or joint ownership, state law would pass Mary's assets to her parents anyway. But, if Mary plans to rely on state law, she should check to ensure it will send her assets where she wants. Because the value of her assets are less than $20,000, they will likely qualify for a simplified probate procedure – so probate is not a concern for Mary.

John and Pam Smith -- The Smith's are a young couple in their mid-20's. They've only been married five years and have two young children. They own assets with a total value of less than $75,000.


John and Pam probably would do fine with a will leaving everything to each other and if the other spouse dies first, then the assets of the surviving spouse would go to the children if they are old enough. If they are still minors, then the assets of the surviving spouse could be left in a testamentary trust (probably an UGMA trust) for the benefit of their children until they reach an appropriate age. Yes, without a living trust, the Smith's assets will have to go through probate. But, as discussed at Is Probate Lengthy and Expensive?, probate is usually not the bugaboo it's often portrayed as. In this case, simply avoiding probate does not seem to be a compelling enough reason for John and Pam to get a living trust.

Scott and Sue Thompson -- The Thompson's are in their early 40's. They have three teenage children. They have a nice house in the suburbs that has $300,000 in equity. They have life insurance policies that would pay out $500,000 if they both were to die. They have various stocks, bonds, and bank accounts valued at $500,000. The value of all their other assets (vehicles, boat, clothing, etc) probably totals about another $150,000.


Scott and Sue could go either way. Because they have assets in excess of $1,000,000, they probably should have a Credit Shelter Trust in order to maximize each of their individual estate tax exclusion. But, either a living trust or a testamentary trust could be used as a credit shelter trust. They also will need a trust for their children's assets if they were to die while their children are still minors. But, again, this type of trust could be a living or testamentary trust. So, there really is nothing in this fact pattern that would indicate a true need for a living trust. However, given how well the Thompson's are doing financially, they probably ultimately will benefit from a living trust. The living trust advantages of avoiding probate, flexibility, privacy, and incapacity asset management will ultimately tip the balance in their case in favor of a living trust. So, it probably makes sense for Scott and Sue to go ahead and obtain a living trust and begin building their estate plan around it.

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Pat and Katie Phillips -- Pat and Katie are in their mid-60's. They've both just retired and are living the good life. The kids are graduated from college and off with lives and families of their own. Scott and Annette have a fully-paid for house with an equity of $700,000. They have life insurance policies worth $500,000 total. They also have various other investment and bank accounts worth $750,000. Their vehicles, equipment, etc (Pat likes to play with a tractor, although he has no farm…) total $200,000 in value. They plan to live off the income of their investments as well as Scott's pension and social security.



No doubt, the Phillips' would benefit from a living trust. As with Scott and Sue, they need to make plans for a credit shelter trust in order to maximize their estate tax exclusion. Since Pat and Katie are a bit older, the advantages of a living trust are more relevant to them. They are particularly interested in the ability of a living trust to be used to avoid a guardianship proceeding if one or both of them become incapacitated.

Rich Gregory -- Rich single and, well…rich. He has a beautiful home worth over $1,000,000. He has a $1,000,000 life insurance and various other investments worth about $1.5 million. He also owns a vacation home in another state.


Rich is a good example of someone for whom getting a living trust is a "no-brainer." He has a large estate with lots of assets. Therefore, probate is a big deal for him. It will likely be lengthy and costly. By moving his assets into a living trust, Rich can avoid probate and save his heirs significant time and money. He can also avoid an ancillary probate proceeding for the out-of-state vacation home. Finally, Rich should get some rather sophisticated estate planning advice in order to avoid a significant estate tax bill. If Rich were to die after 2010, his estate would be looking at an estate tax bill of about $1.25 million. Since Rich is single, he cannot take advantage of his spouses’ estate tax deduction. But, there are still many strategies Rich can employ to begin distributing his assets before his death and significantly decrease his estate tax bill. Because a living trust is so flexible, it is the most likely vehicle Rich would use to distribute his assets before his death.

Now that you've seen some living trust examples, maybe you'd like to compare wills vs. living trusts.


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