Historians have traced the origin of trusts to medieval England when the Crusaders asked trusted friends to manage their estates in their absence. The modern equivalent of this strategy in the United States the, funded living trust, is widely used by "well planned" individuals.
It is a common misperception that the revocable living trust, also known as an "inter vivos" or family trust, is only appropriate for those who are quite wealthy. Such a trust need not be overly complex or expensive to establish and maintain. Essentially, it is a contract entered into by the trust's creator (the grantor) and its initial trustee for the benefit of one or more trust beneficiary. Under a "self-declaration of trust", the grantor is also the initial trustee and the initial trust beneficiary. Typically, living trusts are initially funded with only a nominal amount of assets. Then, whenever the advantages of funding the living trust outweigh the disadvantages, the trustee is made the owner of selected assets. Advisors usually begin urging individuals to fund living trusts after they reach about age 55, when they begin to experience health problems or as assets are identified for which the probate process would be especially costly or troublesome.
Creating and funding a living trust has no gift or estate tax consequences because the grantor is treated as retaining control of the assets placed in the trust, even if he is not its trustee. The trust's income also is taxed to the grantor, so it does not create income tax benefits. Therefore, such a trust is essentially an asset-management device.
State laws differ regarding the use and treatment of living trusts. Accordingly, you should be sure to have a knowledgeable estate planning attorney draft such a trust and advise you regarding its funding.