History

• The history of living trusts reaches all the way back to 1400s-era England. During this period, noblemen drafted living trusts to prevent kings from making false accusations in order to confiscate a nobleman's property, an unfortunately common occurrence. Living trusts helped these noblemen retain their assets even if they lost their rights or lives. This type of trust came to America via Francis Faqueir, the Lieutenant Governor of Virginia, in 1765. Faqueir used the living trust to ensure his family wouldn't have to go through probate upon his death. This very same reason ensures the popularity of living trusts in modern times.
  
  

Parties and Assets

• The actual living trust document names three different parties: the grantor or trustor, the trustee and the beneficiaries. The person or couple who establishes the trust is known as the grantor or trustor, while the trustee controls the trust's assets. In some cases, the trustee and grantor are the same person or people. Beneficiaries, usually the trustor's familial heirs, benefit from the trust on the trustor's passing, as the trustor's assets pass on to them. Living trusts cover virtually any sort of asset. Most commonly, these trusts encompass savings accounts, stocks, bonds, real estate, life insurance and personal property.
  
  

Advantages and Disadvantages

• Estates valued at over $100,000 benefit most from living trusts, as these estates are subject to costly probate. Because living trusts are private, they allow estates to forgo probate proceedings. Probate proceedings can last for months and cost up to 5 percent of the property value, due to lawyer and court fees. Even individuals subject to estate taxes and estates with exceptional family situations benefit from advanced living trusts. Living trusts are relatively low-maintenance and easy to start up -- many trustors don't require a lawyer to draft one -- and never become part of the public record, unlike wills. These trusts do not protect against creditors. Estates worth more than $2 million may benefit from advanced estate planning in addition to living trusts.
  
  

Taxation

• Living trusts take advantage of the Congress-mandated estate tax credit. Under the estate tax credit, estates valued up to $5 million are sheltered from estate taxes. Individual estates valued at over $5 million and couples' estates valued at over $10 million, however, are subject to taxes. Tax rates reach as high as 35 percent in these rare cases.