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Subject:  Living Trust

Using a little foresight, let's say, you've written a will to
distribute your assets to your children after your death and now
you're feeling pretty secure that you've safeguarded your
children's inheritance.  But this may be a false peace of mind. 
You may be leaving for your children months, even years, of agony
in probate court, whopping attorney's fees, hassles with court
officials and emotional anxiety of waiting for their inheritances. 
Surprisingly, there's a simple solution to this problem and a
growing number of people are taking advantage of it.

Revocable Living Trust
     Like many Americans, Jane learned the value of a revocable
living trust firsthand, but paid a heavy price for it.  When her
father died four years ago, he left his business, family residence,
a vacation home in Arizona and other assets to her.  Fortunately,
he had left a will and at first it seemed everything would go
smoothly.  But the problems started cropping up almost immediately. 
Although Jane, an accountant by profession, was named the executor
and sole beneficiary of the estate, she had to hire an attorney to
probate the will.  She was fairly familiar with her father's
financial affairs but, when it came to probate, there was very
little she could do to expedite the process.  It seemed like the
court and attorneys were getting involved in every decision. 
Finally, the probate was over more than two years later but took a
heavy financial and emotional toll on Jane.  The once-thriving
business was pretty much ruined.

     After this experience, it did not take much to persuade Jane
and her husband to set up a revocable living trust.  All of their
assets were transferred to the trust, with both of them acting as
trustees.  Because the trust is revocable, they can change its
terms, or even cancel it at any time.  When one of them dies, the
surviving spouse will continue to act as trustee and control and
manage their assets.  In the event of incapacity or incompetence,
the living trust will allow them to avoid lengthy and costly
guardianship and conservatorship court proceedings.  As Jane put
it, "I want everything to be as easy as possible for my kids if
something happened to me.  I wouldn't want them to go through what
I did with my father's estate."

Flexibility
     The beauty of a revocable living trust is its flexibility.  In
setting up the trust, you transfer legal ownership of the assets to
the trust, but you name yourself as trustee of the trust.  Thus,
although you've relinquished the nominal ownership of the assets,
you continue to be the beneficial owner; you can manage, sell,
mortgage or give away your assets as you please and the trust won't
interfere.  If at some point in time you wish to change terms of
the trust, including designation of beneficiaries, or even revoke
it in entirety, you can do so.

Advantages Over Will
     Many estate planners swear by living trusts; their advantages
over wills are many.  The problem with a will is that it must be
proved valid in probate court.  To probate a will, you'll
definitely need to hire an attorney and attorney's fees can run
into thousands of dollars.  There may be executor's commissions and
other court costs.

     California's probate fees - set by law  -are about average
among states.  For an estate of $500,000 (by no means a small or
uncommon estate where home prices start around $200,000,) the cost
of probate in terms of attorney's fees and executor's commissions
would range around $22,300.  This is a big chunk out of your
children's inheritance.

     Worse than the financial blow, probate can exact an emotional
toll on the surviving family.  Your heirs may have to wait several
months and sometimes years to collect their inheritances, depending
upon the efficiency of the executor, attorney and probate court. 
Delays of eighteen months to two years are not at all unusual.

     Probate records are public records and are available to all
kinds of salespeople, scrupulous or otherwise.  Many a widow has
been persuaded to make unwise or unsuitable investments under
pressure from fast-talking hucksters.

     Living trusts, on the other hand, require no court
proceedings; a successor trustee (who may also be a beneficiary)
simply distributes the assets according to the trust's instructions
and dissolves the trust.  "The process is much quicker, cheaper and
more private than settling a will, and it may save on taxes, too,"
according to a well-known authority on trusts in Atlanta.

Few Disadvantages
     According to most estate planners, revocable living trusts
have few disadvantages.  Inertia may be the biggest foe in most
cases.  Most trust instruments are relatively simple to prepare,
and you'd need to formally transfer the title of various assets to
the trust.  This requires some paperwork and you'd need to contact
your banks, brokers, insurance agents, etc.  In most cases, they
are familiar with revocable living trusts and you'd get excellent
cooperation from them.  Once this paperwork is completed, trust
will not affect the way in which you control or manage your various
assets.

     Along these lines, your setting up a revocable living trust
will have no effect on your income tax situation.  If you act as a
trustee of your own trust, as is normally the case, you wouldn't
need a separate taxpayer identification number.  You would continue
to report all trust income, losses and deductions on your
individual tax return under your own social security number.

Can Save Taxes, Too

     Living trusts can, with proper planning, save on federal
estate taxes.  If a couple has a so-called "A-B" living trust, with
separate trusts for husband and wife, they can pass on up to $1.2
million tax-free to their children, trust attorneys say.  Under
this method, each trust can make the maximum utilization of the
$600,000 federal estate tax exemption.  The surviving spouse can
draw the trust income for life, and also have the right to invade
the principal of the other trust, if there be a need.  When the
second spouse dies, both trusts go to the children.  Without the A-
B plan, the children would pay $235,000 in federal taxes on the
$1.2 million estate, says a tax attorney.

Trusts Hard to Contest
     When a will is probated, the executor of the estate is
generally required to notify all potential heirs - whether they are
named in the will as beneficiaries or not - that the will is in
probate.  A disgruntled heir, rightfully or wrongfully denied his
share of the estate, can rock the boat at this time by alleging
undue influence or lack of mental capacity.  In many instances, he
may not even need to hire an attorney to start such a will contest. 
Facing the prospect of a long, drawn-out court battle, oftentimes
the executor or the other heirs will settle with the disgruntled
heir by giving in to the "blackmail."

     This is exactly what happened when J. Seward Johnson, 87, of
Johnson and Johnson fortune died leaving the entire estate worth
$500 million to his third wife, Basia, then 46.  Johnson�s six
children, disinherited by their father, contested the will.  In a
settlement, the children and a charity got $169 million.  The wife
got to keep the remaining fortune and the attorneys reaped a $24
million bonanza.

     Living trusts, on the other hand, are extremely hard to
penetrate.  A living trust is set up during your lifetime and,
presumably, you�ve been administering the trust for several years. 
It would be difficult to challenge your competency to set up the
trust under these circumstances.

     Upon your death, the trust estate is distributed to the named
beneficiaries almost immediately, without the intervention of a
probate court.  Anyone wishing to contest the trust would have to
sue each and every beneficiary - after they�ve received the assets,
ruling out the possibility of blackmail.

     Remember, the trust is an entirely private affair and no one,
other than the beneficiaries, needs to know the contents of the
instrument.  This precludes disgruntled heirs from using the threat
of a court battle to tie up the estate in years of litigation.

Joint Tenancy Not a Solution
     Most married couples (and often, a parent and a child) hold
title to a property in joint tenancy with the right of
survivorship.  Upon the death of one joint tenant, the surviving
joint tenant inherits the asset without going through probate.

     So far so good.  But when the second spouse dies, unless he or
she has placed the property in joint tenancy with someone else,
that property will be probated. A living trust is one sure way to
avoid that problem.

     Most estate planners advise against joint tenancy for a
variety of reasons.  For some persons, in certain situations, joint
tenancy may be a wise decision.  However, in a vast majority of
cases, joint tenancy spells major disadvantages.

     For instance, say you own your home and care in joint tenancy
with your son.  If the son gets into an accident, and the injured
person files a lawsuit, you�d be named a defendant along with your
son.  If an adverse judgment is rendered, your personal assets are
at risk.

     Or take this scenario.  You and your wife own all assets in
joint tenancy with a view to avoid probate when one of you dies. 
But your wife has to be put into a nursing home due to Alzheimer�s
disease.  Now you would need to go to probate court before being
able to do anything with the jointly-owned assets.  In this case,
joint tenancy actually turned out to be a curse.

Guardianship
     Living trusts are well-suited to handle just such a
contingency.  A growing number of Americans are putting their
assets into living trust because they want to avoid being placed
under a court-appointed guardian if they become physically or
mentally disabled and are unable to manage their affairs.  "With a
living trust, you can designate the person (generally the successor
trustee) who�ll take over your affairs in the event you become
incompetent," says an estate planner who advises senior citizens on
a regular basis.  This avoids the cost and public embarrassment of
a court conservatorship or guardianship proceeding.

Why Aren�t Living Trusts Better Known?
     If living trusts are such a wonderful device for passing on
your inheritance to your children, why aren�t they better known?

     Well, the truth is they are getting increasingly more popular,
more so in certain parts of the country than others.  You�ll
regularly find articles on living trusts in most major personal
finance or money magazines and also in newspaper columns.  These
articles universally laud the benefits of living trusts against
wills, or the scarier option of dying without a will.

     This does not mean that every attorney in your town knows
about living trusts, or is willing to help you set up a living
trust.  Many simply do not know enough about living trusts, and
there are some who would rather you didn�t know anything about
them.  These attorneys derive a substantial portion of their income
from our probate system and they are not about to kill the "cash-
cow."  These attorneys are building a "will file"; each will they
write, they hope, will ripen into a probate estate.

     Then there are some attorneys who�ve seen the writing on the
wall and have decided to join the bandwagon.  They have discovered
that helping people set up a living trust can be just as lucrative
as probating an estate, especially if you can charge $595, $895 or
$1,500 to set up a simple revocable living trust.  They advertise
free seminars in local newspapers and sign up clients just for such
a service.

     While doing it, they can portray themselves as heroes.  A law
firm in Southern California, in its free - seminar advertisement
for a living trust, touts itself as "defying the system by placing
principle above profit."  It is "willing to forego millions of
dollars in probate fees in favor of preparing a one-time,
foolproof, affordable plan."  This just proves the point I�ve been
trying to make here: Probate is a multi-million dollar business
and, like the ad says, �you should avoid it like the plague.�

     Along these lines, your setting up a revocable living trust
will have no effect on your income tax situation.  If you act as
trustee of your own trust, as is normally the case, you wouldn't
need a separate taxpayer identification number.  You would continue
to report all trust income, losses and deductions on your
individual income tax return under your own social security number.

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