Q: How does a Living Trust function as a management device if I am incapacitated?
In the event that you are incapacitated, the trust can provide for an alternate trustee, whom you have selected, who will manage the trust funds for you. The trust document should spell out how the determination of incapacity is made.

Q: How does a Living Trust serve as a substitute for a Will?
The trust document provides for the distribution of the settlor's assets upon the settlor's death. On the death of the settlor, the trustee distributes the trust assets directly to the beneficiaries designated in the trust instrument. There is no automatic court supervision or probate of this distribution process as there is under a Will. This is generally faster and less costly than the distribution of assets pursuant to a Will.

Note: In order for a Living Trust to function as a Will substitute and avoid probate, the settlor's assets must be transferred into the Living Trust during the settlor's lifetime.

Q: Does a Living Trust save taxes? You can utilize the same tax planning strategies in a Will as in a Living Trust. The use of a Living Trust does not in and of itself save taxes, but a Living Trust may be one vehicle for tax planning. You should consult an attorney to find out ways in which you might limit taxes on your assets.

Q: Can a Living Trust be used to obtain Medicaid benefits? People who are facing the need for long-term custodial care often explore Medicaid as a source of coverage. Putting your own assets into a Revocable Living Trust does not shield or protect those assets for Medicaid purposes.

Q: Who can serve as a trustee of a Living Trust? A trustee can be an individual, such as a family member or friend, or it can be a bank or other financial institution. If you choose an individual to serve as your trustee, you want to make sure that he or she is both trustworthy and able to manage your assets. Some people prefer a neutral third party, such as a bank or trust company. These institutions do charge fees, usually based on a percentage of the trust estate, and you may want to interview several trust companies before you choose one.

Q: Is a Living Trust right for everyone?
For many people, a Living Trust is an ideal arrangement both for management of assets and as a Will substitute. However, it is not right for everyone. Under a Living Trust, the trustee who manages the assets has an obligation to use trust assets only for the beneficiary's benefit, but there is no ongoing court supervision of the trustee. Thus, there is less protection in case of mismanagement of assets than there is in a conservatorship.

Also, a Living Trust is more costly to have drafted than a Will. These are costs that you will pay up front, as opposed to probate costs, which are paid after a person's death by his or her heirs. In the long run, the cost of a Will and the cost of a Living Trust may be about the same. Furthermore, in order for a Living Trust to function effectively, it must be fully funded. This entails, in some cases, considerable effort on behalf of the settlor to transfer assets into the trust.

Q: If I have a Living Trust, do I need a Will?
Although a Living Trust functions as a Will substitute, it is necessary even with a Living Trust to have a "pour-over" Will. A pour-over Will makes sure that any assets that were not transferred into the trust during the settlor's lifetime are poured over into the trust on the settlor's death. If all of the settlor's assets have been transferred into the trust during the settlor's lifetime, the pourover Will will never be used or admitted into probate.

Q: If I have a Living Trust, do I still need a Durable Power of Attorney for Property?
It is usually advisable to have a DPA for Property in addition to the Living Trust. This is because some decisions that must be made on your behalf do not fall within the powers of a trustee.

Q: If I have a Living Trust, do I still need a Durable Power of Attorney for Health Care?
Yes. A trustee under a Living Trust does not have the authority to make medical decisions on behalf of the settlor. A trustee can use trust assets to pay for medical care, but they cannot make medical decisions. If you would like your trustee to make medical decisions for you, you will need to appoint him or her as your health care agent through a separate Durable Power of Attorney for Health Care (see previous section of fact sheet).

Q: How do I establish a Revocable Living Trust?
If you choose to establish a Living Trust, it is a good idea to do so through a qualified attorney who is knowledgeable in estate planning and assets management. Trust documents can be very complicated.