For many years now, financial and estate planners have been advocating to their clients the advantages of establishing a living trust as the best method of ensuring that their property is protected and that it can be passed on intact to the next generation.

A living trust, which can be established to be revocable or irrevocable, can be created at anytime during a person's adult lifetime. All that is basically required is to draw up a trust directing how the assets (usually property) will be managed.

Many people who have large property packages that are being rented out for income assign these properties to a living trust, and enjoy the rental income as long as they are alive. When they pass on, the property passes on the benefactors of the trust, who continue to earn income from the rental property in perpetuity. Theoretically, as soon as the benefactors are bequeathed the property assets in their name, the can immediately establish a living trust in their names, further protecting the assets from the ravages of probate and estate taxes.

So how do you go about creating a living trust?

The majority of living trusts are revocable. In other words they can be changed and revalued. The trustor or the estate, or the owner of the property, can also be the trustee of the estate. All that is basically required is for the trustor to draw up the necessary papers to establish the fund. In the internet age, it is even possible to purchase the necessary forms on line, and simply have them authorized by a notary public.

Once the papers have been signed and authorized, stating how the property assets transferred to the trust will be managed, to whom the income from the trust property will be paid, and who will be beneficiaries of the trust's assets once the trustor moves on to the next life.

The advantages of establishing a revocable trust is that it can be totally fluid. If the trustor, for example has considerable property assets, they can be actively dealing in them, buying, selling, trading up and trading down. However in the event that the trustor passes on unexpectedly, and assets that they have in their possession is not included in the assets of the living trust, then the beneficiaries may be liable to pay estate tax and probate fees on the assets.

If, from the outset, the trust is established to be irrevocable, then the assets that are assigned to the fund remain constant throughout as well as the beneficiaries. The trustor can still retain the income from the fund, which may include the family home. It is also possible for a trustor to establish several trusts, both revocable and irrevocable to suit their personal and business interests. Obviously each trust must contain its own assets, and they cannot overlap.

For every property asset that is transferred to a living trust, the trustor must sign what is known as a trust deed. This deed must be legally signed and recorded, or else it may not come under the protection of the living trust against estate taxes or probate.

If the trustor wishes to transfer publicly traded stocks and bonds to the living trust, they will be required to retain the services of a broker in order to do so. It is even possible to transfer shares in a business partnership, incorporated company or even a corporation into a living trust. In this case, a lawyer will require to be retained to carry this out. Any other forms of tangible assets without formal legal title such as cars, household contents, antiques, jewellry and business machinery will require a bill of sale before they can be added to a living trust.

Obviously the larger the estate and the more complex it is, the higher the cost of establishing and administering it will be. However when offset against the possibly of the beneficiaries having to pay up to 46% estate tax, as well as between five to eight% probate fees, it still remains a very prudent investment.

Ruth Campbell owns and operates Your Living Trust