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Louisiana Living Trusts Explained:

A trust is a legally binding instrument between a person creating the trust (the grantor) and the person or entity managing the trust and its assets (the trustee).  A grantor may also be referred to as a settlor or trustor.  Like a will, a trust has beneficiaries, who under the terms of the trust, will receive certain assets from the trust.

A “living” trust (also called an “inter vivos” trust) allows the grantor to transfer ownership of their property to the trust during their lifetime.  This is in contrast to a testamentary trust which does not become effective until death.  The effect of putting an asset into a living trust is that it changes the title to the asset for legal purposes.  Instead of the asset being in the name of the grantor individually, the asset is transferred into the name of the living trust.  This process of retitling the trust property is referred to as “funding the trust.”

The named trustee will manage the assets for the beneficiaries.  Since it is immediately effective, most living trusts are created with the grantor also being the trustee and sometimes also the beneficiary.  This is so he or she maintains control of the trust assets until he or she dies.  The grantor will also name a successor trustee and successor beneficiary to manage and receive the assets after he or she passes. 

La. R.S. 9:1734 states that “[a]ll trusts not testamentary are considered inter vivos, regardless of the time of creation.”  Per La. R.S. 9:1752, “[a]n inter vivos trust may be created only by authentic act or by act under private signature executed in the presence of two witnesses and duly acknowledged by the settlor or by the affidavit of one of the attesting witnesses.”

There are two basic types of living trusts, revocable and irrevocable, which are each used for different purposes.

Revocable Trusts versus Irrevocable Trusts:

Revocable Living Trusts:

Most living trusts created are “revocable living trusts,” meaning the grantor can make changes to the trust during his or her lifetime.  This means the grantor can add or remove assets, change beneficiaries, or even revoke the trust entirely if they wish.  Because the grantor still retains control over the assets in a revocable trust, they will be considered part of the estate for tax purposes.  Thus, there are no estate tax or income tax benefits.

Living trusts are somewhat similar to a will or testamentary trust which also can be revoked or amended at any time by the grantor or settlor.  The difference is that in a living revocable trust, the assets are transferred into the name of the trust immediately which provides the primary benefit of probate avoidance.  Upon the death of the grantor, the revocable living trust transforms into an irrevocable trust, whereby the trust beneficiaries receive their assets as directed by the grantor.

Irrevocable Living Trusts:

In contrast, “irrevocable living trusts” cannot be revoked or modified after execution.  When the grantor transfers ownership of the assets to the trust, he or she gives up a great deal of control as the assets cannot be returned to the grantor.  This also means the terms of the trust cannot be changed unless all the beneficiaries agree to do so.

Irrevocable trusts are less common and are useful for very specific goals, the most common being tax avoidance and asset protection.  Because irrevocable trusts require giving up ownership and control of trust property, the assets are protected from creditors of the grantor.  The assets can also grow tax free.  Further, for especially large estates valued above the Federal estate tax threshold, irrevocable trusts can be used to avoid those estate taxes.

Other Benefits of a Living Trust:

Privacy:

Probate avoidance isn’t only about saving money and time.  Often the costs associated with creating a trust will be equal to or greater than the cost of probate anyway.  Probate avoidance can be very beneficial when it comes to privacy, however.  A last will and testament must be probated, which means it will be filed in the public record of a succession proceeding.  Once filed in the public record, anyone can see a list of the estate’s assets and their values.

No one likes to talk about their level of wealth during life.  Likewise, many feel uncomfortable with that information being disclosed after death.  This may be especially true for business owners in competitive fields, whose competitors and rivals would jump at the chance to examine a list of their assets and liabilities.

Avoidance of Multiple Probates:

A living trust is particularly useful when you own real estate (immovable property) in more than one state.  Without a trust, this would trigger the need for “ancillary probates” in each additional estate.  However, transferring real estate into a trust will avoid probate in each state, saving additional time and money.

Incapacity:

Another benefit of a living trust is the possibility of ongoing management of your assets if you lose capacity to manage them yourself.  Without a living trust, you would need to give someone power of attorney to act on your behalf.  While power of attorney is effective, banks and other institutions are more likely to accept a trust document over a power of attorney.  If you have a living trust and have named a successor trustee, the successor can step in and continue to manage the trust assets.  Further, an abstract of the trust document can be provided to protect the privacy of the full instrument.

Special Needs:

If a child with special needs or a disabled person receiving governmental benefits such Medicaid or SSI receives an inheritance, then that inheritance will be counted against them for the purpose of qualifying for the governmental programs.  A special needs trust can be incorporated into a living trust to help prevent the loss of benefits.

Medicaid and Long-term Care:

Certain types of irrevocable trusts can be used when an elderly or disabled person needs to protect assets from disqualifying him or her from receiving Medicaid.  The 5-year lookback period must be taken into account though.  They are also useful at protecting estates from being depleted by the costs of nursing homes.

Do I Still Need a Will if I Create a Living Trust?

A will is still recommended for multiple reasons.  First, it will allow you to designate a guardian or tutor for your minor children.  You can’t use a trust to name a tutor for minor children.  

A last will and testament will also account for property that has not been transferred to the trust.  This is referred to as a “pour-over” will.  It is common for grantors to forget to formally transfer property to the trust, or to buy or inherit property after the trust was created.  Either way, the property won’t be distributed according to the terms of the trust.  

Without such a will, any property that isn’t transferred by your living trust will go to your closest relatives as determined by Louisiana intestacy law.  A pour-over will can determine how assets outside the trust are distributed, or it can even grant ownership of these assets to the trust itself.  Those assets may have to go through probate first, but they can then be distributed as part of the overall living trust plan.

New Orleans Estate Planning Attorneys:

We are a Gretna law firm that has served the New Orleans area since 1980.  Our estate planning lawyers are well versed at creating living trusts.  We can help guide you through the process and advise you which type of trust would be best suited for your needs.  We take pride in offering a personal and trusted experience.  Call us today for a free consultation and find out why so many of our clients come back to us.

Louisiana living trusts