The revocable living trust has become a very popular estate planning tool for New Hampshire families today. There is good reason for this, as the revocable living trust is a document which can be used to avoid probate, reduce estate taxes, manage property for minor children, and plan for an individual’s disability or incapacity.

It is important to first understand the language of trusts. A trust is an arrangement by which one person (the "trustee") holds property for the benefit of another (the "beneficiary"). The person who creates the trust is known as the "grantor" or "settlor." The fact that a trust is "revocable" means that the grantor has the authority to amend any of the terms of the trust or cancel it entirely.

It is common for the grantor to also be the initial trustee and the primary beneficiary of a revocable living trust. In that way, the grantor does not give up any control of the assets placed in the trust. There are also no tax consequences, in the sense that while the grantor is alive, he/she reports all trust income on his/her own tax return, and all trust accounts are established under the grantor’s own social security number.

One of the primary reasons for creating a trust is to avoid probate. The New Hampshire probate process is document intensive, often resulting in unwanted expense to the estate. In addition, beneficiaries cannot receive distributions from an estate for at least six months (and more often it is a year), in order to allow creditors time to make claims against the estate. Property titled in the name of a trust is not subject to probate. Rather, upon the death of the grantor, the trustee simply administers the trust assets in accordance the instructions provided in the trust document, without court supervision. This also provides privacy protection. Unlike a Will (which must be filed with the probate court and becomes a public document), a trust does not generally need to be filed with any court or registry.

For married couples with assets in excess of the federal estate tax exemption $2 million for 2006-2008 and $3.5 million in 2009), a trust is also an important tax planning tool. A revocable living trust can direct the trustee to create a "credit shelter" trust after the grantor’s death. This particular strategy ensures that a married couple will take advantage of the estate tax exemption available to each of them, effectively doubling the amount that can pass free of tax.

For parents with young children, the revocable living trust can offer some peace of mind. When property is left outright to a minor child, it is often necessary to have a court appointed guardian to manage the assets. Guardianships can be expensive, and they require strict court supervision. Furthermore, the child will generally be entitled to receive the assets when he/she reaches age eighteen. For parents who are concerned about an eighteen year old’s ability to manage money, a trust can be a helpful alternative. A parent can name a trustee to hold property for the benefit of the child until the child reaches age 25, 30, or any age that the parent feels would be appropriate.

Finally, a revocable living trust can be used to plan for the possibility of the grantor’s disability or incapacity. In those circumstances, the trustee can step in to manage the grantor’s assets, avoiding costly guardianship proceedings.

A revocable living trust is a versatile document which can benefit individuals of any age or asset level. The advantages described in this short article are just a few of the reasons for creating such a trust. Our estate planning attorneys can discuss these issues with you and your family in greater detail to customize a document that will work best for you.