A living trust is a document that allows you to place assets in a trust during your lifetime. You continue to use the assets, but they are owned on behalf of the trust. You name a trustee who is responsible for managing and protecting the assets in the trust. Upon your death, the trust assets will be distributed to the people you have chosen as your beneficiaries.
Living trusts are often described as the best estate planning tool and something everyone should have. The truth is that a living trust may not solve all your problems, but it can be one of your estate planning tools. To find out what is right for you, ask your attorney the following questions.
Which Assets Can Go Into a Living Trust?
Most of your property can be placed in your living trust, but some items, such as life insurance and certain retirement accounts, are not eligible. The more assets you put into the trust, the more beneficial the trust will be.
Who Should Be My Trustee?
Most people name themselves as trustee to manage the trust assets during their lifetime. You can choose anyone or even a company as your trustee if you wish. If you name yourself, you must name a successor trustee who can manage the trust after your death.
Can a Living Trust Avoid Estate and Probate Taxes?
A revocable trust (one that can be changed during your lifetime) does not avoid estate taxes applied by your state or the federal government. A special type of living trust called an AB trust transfers assets directly from one spouse to the other and avoids estate taxes. A living trust does not go through probate, so your estate does not have to pay probate fees or costs.
What Are the Benefits of a Living Trust?
Living trusts offer a variety of benefits, which is why they have become so popular. A living trust allows your assets to avoid probate. This will avoid the costs associated with having a will probated, but you also avoid the delay associated with probate. Probate of the last will can take several months, but if you create a living trust, the trust assets can be distributed after your death.
You can also choose to postpone the distribution to a later date. Some people plan distributions for their beneficiaries’ big birthdays, for example. Another advantage of a living trust is that since it is not an irrevocable trust, you can change it at any time. You can even choose to eliminate the trust if you so choose. A living trust is also private. Since it hasn’t been tried, it can’t become a public record.
What Are the Disadvantages of a Living Trust?
A living trust may not include all of your assets, as some are not eligible to be owned in the trust. Another problem with a living trust is that it can only control the assets it specifically transfers, so if you forget to change ownership of something like a bank account, it won’t be covered.
If you rely solely on trust to plan your estate, assets outside of your trust will go through your state’s intestacy laws. The living trust cost can also be seen as a drawback. You must pay upfront to prepare the document and arrange for the management of the trust. These costs can be higher than those associated with having a will drawn up and probating a small estate.
Do I Still Need a Power of Attorney?
Living trusts have already transferred all of your assets into the trust’s ownership and management, so that should you become incapacitated, they are already being handled for you. Most lawyers recommend that you also create a power of attorney that authorizes others to make legal and financial decisions for you, so there is no question of someone handling those decisions if you are unable to do so.
What Is the Difference Between a Living Trust vs. Will?
A living trust takes care of managing and owning the assets you specifically place into it. The trust is designed to work during your lifetime and after your death. A will provides for the distribution of all your assets after your death. It only provides guidance on what happens to your property after you die.
How Do I Create a Living Trust?
To create a living trust, you must obtain living trust forms for your state. Fill out the forms and sign them in front of a notary, don’t forget to appoint a trustee and create the terms for your trust. The trust cannot be used until you transfer ownership of its assets.
Should I Also Have a Will?
Most lawyers agree that if you create a living trust, you should also have a will. This will sometimes be called a pour-over will, is your insurance. If there are assets that are not in your trust, the will directs that those assets be placed into the trust. This way, all your belongings will be protected.
A living trust offers great flexibility and privacy and can be an important part of your estate plan. Considering all the available options will help you choose the best one.