Estate planning is an important part of life planning that affects your entire family. The decisions you make today regarding your estate plan can help protect your loved ones in the future. Without an estate plan, you can’t choose who gets everything that you have worked so hard for. Instead, the courts will decide who gets your assets, which is a process that can take several years and it often causes disputes between family members. Estate planning is not just for the wealthy — having a strategy in place to pass on your assets will make the process smoother for you and your loved ones.
What are Living Trusts?
A living trust ensures that the assets you do have are not wasted in probate court, but instead passed on to your loved ones. A living trust (also called an “inter vivos” or “revocable” trust) is a common estate planning tool that has several benefits. A living trust is a legal document through which your assets are placed into a trust for your benefit during your lifetime and then transferred to designated beneficiaries at your death by a representative of your choosing, called a “successor trustee.”
Living trusts can be modified or revoked during your lifetime if you have second thoughts about a provision in the trust or if you change your mind about who should be a beneficiary. This means the creator of the living trust retains the right to rescind the trust and regain control of the trust assets during the creator’s lifetime. A revocable living trust becomes irrevocable when the trust creator dies because the individual is no longer available to make changes to the trust.
How Do Living Trusts Work?
When you put property into a living trust, the trust becomes its owner. This means you must transfer title to the property from your own name to that of the trust. In addition, because you retain the right to revoke the trust, the property in the trust belongs to the trust creator for tax purposes. If you receive income from the assets, you must report the income from the trust directly on your income tax return.
Living Trust Benefits
There are many benefits to having a living trust. Some of the benefits include the opportunity to: avoid probate, maintain control of the distribution of your estate, minimize costs, provide organization and protect privacy.
Living Trust Benefit #1: Avoids Probate
A primary reason for creating a living trust is that it avoids probate. Probate is the court-supervised process through which a deceased person’s estate is distributed. Probate includes locating and determining the value of the deceased’s assets, paying off any outstanding bills and taxes, and then distributing the remaining value of the estate to the deceased’s heirs all under the court’s supervision.
Unlike a will, a living trust will avoid probate, which often means avoiding a lengthy and costly process. The probate process can easily cost thousands of dollars and take several months to more than a year to resolve. By the time inheritors receive any property, there is less for them to receive because on average, about 5% of the estate value is eaten up by statutory/required attorney’s fees and court fees.
In addition, complications, such as a contested will or an inability to find clear records of all of the deceased’s assets and debts often arise, which can extend the lengthy probate process even longer. With a living trust, the whole process of distributing assets usually takes only a few weeks, and there are no lawyer or court fees to pay. When all of the property has been transferred to the beneficiaries, the living trust ceases to exist.
Living Trust Benefit #2: Privacy
Privacy is another one of the benefits of creating a living trust. Unlike a will, a living trust is not made public, and upon your death, your estate will be distributed in private. A trust creates privacy for your personal matters because only the designated beneficiaries would be aware of the trust terms. However, probate proceedings are a matter of public record so when your estate goes through this process, there is no privacy. This public knowledge may cause conflicts or even legal challenges.
Living Trust Benefit #3: Avoid a Conservatorship and Guardianship
A revocable living trust allows you to authorize your spouse, partner, child, or other trusted person to manage your assets should you become incapacitated and unable to manage your own affairs. A will only becomes effective when upon death, so it does not help in avoiding conservatorship and guardianship proceedings during your life.
Living Trust Benefit #4: Protecting Inheritances for Loved Ones
A common reason to create a trust is to provide ongoing financial support for a child or another loved one who may not be able to manage assets on their own. Through a trust, you can designate someone to manage the assets and distribute them to your heirs under the terms you provide. Giving an inheritance to an heir directly and all at once may have unanticipated ancillary effects, such as disqualifying them from receiving some forms of governmental benefits, enabling and funding an addiction, or encouraging irresponsible behavior that you find undesirable. A trust can also contain conditions that must be met for the heir to receive the benefit of the gift, such as obtaining a college education.
Living Trust Benefits
The creation of a trust puts you in the driver’s seat when it comes to your assets and your wishes as opposed to leaving this critical decision to others, like a judge. It is important to understand that a trust only controls assets that are in the trust, so in order to get the protection of a living trust, you must place these assets in the trust. In addition, because our lives are constantly changing through life events such as marriage, the birth of a child, or purchasing a new home, it is important to continually update and monitor the funding of your trust over your lifetime. Therefore, you will want to seek professional help from your estate planning attorney to make sure your assets are properly aligned with your trust. You don’t want to go through this process alone. We are here to help you and your family. Contact the attorneys at RJS Law today by calling or filling out an online contact form.