There are many reasons to consider living trusts as a beneficial estate planning device. Reducing estate taxes and having additional control over when and how assets are transferred to beneficiaries are just two of them.
People also use them to manage their assets while they are alive and take advantage of the other benefits. Living wills can help keep your estate out of probate. It can also help ensure you are taken care of during your lifetime in the event you become mentally or physically incapacitated.
Read on to discover why creating a living trust might be a good addition to your estate plan.
What Is a Living Trust?
A living trust is an estate planning document you create that will transfer assets to your trust which will be transferred to your beneficiaries after you pass on.
Unlike a will, which takes effect upon your death, a living trust takes effect once you have signed the document. Your trust becomes the owner of your property and the trustee you designate will disburse your assets to your beneficiaries at the time of your death.
Types of Living Trusts
Living trusts can be either revocable or irrevocable.
Revocable trusts can be changed or dissolved prior to your death. This is important since it allows you to change or add beneficiaries. You can also add or remove property from the trust and change the name of successor trustees.
Irrevocable trusts cannot easily be changed or dissolved. Changes often need all the beneficiaries to agree and this can sometimes be difficult to obtain. Irrevocable trusts are often used to protect assets against taxes and creditor claims.
Who Should Be Your Trustee?
If you create a revocable trust, it makes sense to name yourself as the trustee provided you don't have a health concern that may make your incapacitated. However, you can also name yourself as trustee and name a successor trustee in the event you are no longer able to act as trustee.
If you create an irrevocable trust, it's advisable to name someone other than yourself as the trustee. One of the benefits of living trusts that are irrevocable is that they can help protect your assets from creditors. Naming someone other than yourself as a trustee can provide weight to show that the trust wasn't created for less than ethical purposes.
Finding a trustee to name should be well thought out. Picking someone with financial experience who can work well with your beneficiaries is essential.
The person you name doesn't have to be a lawyer or financial adviser, but they need to be someone who knows how to get advice on issues that arise when they need help, such as with estate taxes and property transfers.
How Are Beneficiaries Affected?
Normally, when a person creates a will, the named beneficiaries inherit as soon as the estate gets disbursed. This is usually a short time after your death.
With a living trust that gets managed by a trustee, beneficiaries can benefit at whatever point your trust indicates. So, for instance, if you would like for a child or grandchild to inherit when they become a particular age or after they complete college, you can do that.
Or, a living trust can also be set up to disburse assets to beneficiaries over time, rather than as one lump sum.
Living trusts can live on for as long as there are trust assets. So you can set up beneficiaries, such as your children, to use assets during their lifetime, while the trust retains ownership. By doing so, you can ensure property and other assets remain available for use by future generations.
Benefits of Living Trusts
There are benefits to both types of living trusts. The wording in the trust will dictate your right to use the property while you are alive. But you do lose management control when you create an irrevocable trust.
Your loss of control in an irrevocable trust comes with some benefits. Your estate taxes can be lowered and the assets can be protected against claims from creditors. It can even protect the assets from a spouse during a divorce.
Other Important Estate Planning Documents You May Need
It is common that people need more than just a will or a living trust to completely cover their estate planning needs. It is important to discuss your particular financial and medical situations with your attorney. This way you can be sure you are covered for events that may arise in your lifetime.
Durable powers of attorney give a person you designate the right to make decisions for you if you become unable to make those decisions for yourself. For these to be effective, you need to set these up while you are legally competent. Keep in mind that so long as you remain competent, you will keep control to make these decisions for yourself.
There are durable powers of attorney that are specifically for either financial or medical decisions. So you can create one or both of these. You can name different people to handle each type of matter for you or you can name the same person for both.
Discuss Your Estate Planning Options
Schedule an appointment to talk to your lawyer about living trusts and estate planning options that are available to you. No matter what the size of your estate is you should have an estate plan in place.
Contact us to set up a time to discuss your options. We can help you decide whether a living trust is right for you.