The grantor can continue controlling assets while they are alive by creating a revocable living trust. In addition, the Trust can protect family members dependent on government disability assistance. Probate can be expensive and time-consuming for beneficiaries; a living trust can help avoid this. It can also prevent public disclosure of the estate.
What is a living trust?
A living trust is a legal entity that you, the grantor, create and designate to hold and oversee assets you transfer to it during your lifetime. The trustee, typically you choose, has a fiduciary duty to follow your directions on distributing the assets to beneficiaries after your death. A living trust bypasses the probate process, in contrast to a will. However, it would help if you changed your property’s legal ownership, including retitling cars, changing deeds, and issuing new investment certificates and money market account names. Generally, this is easier than executing a will and less expensive than probate.
Furthermore, a “pour-over” will is included with every living trust. It is a safety precaution for any assets you may overlook transferring into the Trust, potentially saving taxes. It does not avoid income taxes, however. While alive, you continue to report the Trust’s income on your tax returns.
How do I create a living trust?
A living trust is a type of will you make while still alive to preserve the ownership of your assets, so make sure to know how to set up a living trust. You, the grantor, then name a trustee (usually yourself during your life and someone else to manage your Trust after you die) to follow the terms of your Trust.
A vital benefit of a living trust is that it avoids the probate process. Probate is a court-supervised procedure for winding up an estate and distributing the assets to beneficiaries. Generally speaking, this is a lengthy and expensive process.
A revocable living trust eliminates this step. The trustee of your Trust will have the authority to transfer your assets to your beneficiaries right away after your death, avoiding the need for the probate process to be finished. It saves your family trust, money, and a lot of hassle. It also helps keep your estate plan private. It’s essential if you own property in multiple states.
What are the benefits of a living trust?
Avoiding probate, a court-supervised estate administration procedure is one of the living trust’s most important advantages. Assets that go through probate must be distributed according to the terms of your will, which can be time-consuming and costly. However, assets in a living trust are distributed immediately, and there are no probate fees.
A living trust is also revocable, meaning you retain control of the assets you transfer into until your death. You can change or revoke the trust terms at any time so that you can make adjustments as your needs change. Also, living trusts provide privacy, as the documents are not public records like a will.
Lastly, with a living trust, you can appoint someone to manage the Trust if you become incapacitated or die. This person is known as your successor trustee.
How do I transfer my assets into a living trust?
A living trust shields your assets from the court’s control in the event of incapacity and avoids probate upon death. However, the living trust can only protect assets transferred into it. Four main categories of support can be placed into a living trust: real estate, financial instruments (investments and bank accounts), tangible personal property (such as vehicles, furniture, art, and collectibles), and income-generating properties (such as rental properties and businesses). Each category has a different procedure for transfer. For example, when transferring real estate into the Trust, you must execute a deed and file it with the county office that keeps property records. Likewise, when transferring bank accounts into the Trust, you must not trust the bank so that future checks are printed with the trust name. You may also need to retitle vehicles and fill out new insurance forms.
How do I name beneficiaries?
It’s essential to coordinate your beneficiary designations with your official trust documents. Updating those in your Trust is necessary if you change the names on your financial accounts or life insurance policies. Updating banks, brokerages, insurance companies, investment certificates, vehicle titles, house deeds, and other entities can involve many phone calls and paperwork. Suppose you change beneficiaries on assets that avoid probate. In that case, it’s best to do so in consultation with an attorney and CPA due to the complex tax rules involved. It’s also good to list contingency and alternate primary beneficiaries if the first named beneficiary predeceases. Sometimes, having a trust listed as the beneficiary on some specific assets, such as smaller financial accounts, souvenirs, jewelry, and even clothes, makes sense. It avoids a sizeable lump-sum payment going to loved ones upon your death and instead allows for smaller distributions spread out over time.
How do I name a trustee?
The person who manages the assets of a living trust is called a trustee. The trust document names the grantor as trustee and usually quotes someone to be successor if the grantor becomes incapacitated or dies. Trustees can be family members or financial institutions such as banks or brokerage firms. A trustee is a fiduciary who must comply with the laws of your state. Some grantors choose to serve as their trustee, especially if they are young and healthy and can still make decisions. Others may wish to name a trusted friend or family member as trustee, and many people use attorneys as their trustees. However, a family member can cause problems if they have a “flip-flop” personality or cannot be objective. For these reasons, some people use an impersonal institution as a trustee, such as a bank or a professional trust department.
