Living trusts allow you to enjoy the benefits of your assets while you’re alive and pass them automatically to your chosen beneficiaries once you’re gone. Gaining a better understanding of living trusts can be beneficial not only for yourself and your estate but also for your loved ones. As you compile your estate plan, take some time to learn about what living trusts can do for you. Creating a living trust is no more complicated than making a last will and testament, and it can provide additional advantages for your estate.
Living Trust
A living trust, also called a revocable or inter vivos trust, is a living legal document as its name implies. A living trust is revocable, which means the creator, also called the grantor can cancel it at any time. In fact, the creator retains complete control over the assets in the trust and over which assets are in the trust at all. As a trust creator, you can add and remove property as you wish throughout your lifetime. This flexibility is one of the main advantages of a living trust.
Every living trust needs a trustee, who is usually the creator; a successor trustee to take over when you’re gone, and one or more people who will receive trust assets called the beneficiaries. You may choose anyone you have confidence in or even a corporate trustee, such as a bank, to be your successor trustee.
You also must decide which property to place in the trust. Assets are placed into the trust by transferring ownership by deed or title to the trust. For example, if your family home is placed in the trust, the deed must be transferred to name the trust as the owner. The process of placing assets in the trust is called “funding the trust,” and it is the point at which the trust is officially formed.
Reasons for creating Living Trust.
Living trusts are often the topic of small talk at social gatherings or on the golf course, but not many people know what they actually do. They are living because they are created now, while you are alive. You sign it and it becomes an enforceable document. Your living trust can be revocable or irrevocable. A revocable trust can be revoked or amended by you. An irrevocable trust cannot be changed by you once it is signed. Because an irrevocable trust cannot be changed, you want to be extra careful to understand its terms. The vast majority of people will start with a revocable trust.
A typical estate plan includes a will that pours over your assets to a revocable trust. On your death, any assets in your name alone will become part of your estate. Your will then directs the executor of your estate to hand them over to the trustee of your trust to administer them.
Reduce Estate Taxes.
If you are married, the trust can provide for estate tax savings. In Massachusetts, for example, a properly drafted and administered trust can save a couple approximately $100,000 in estate taxes on the death of the second spouse.
Protect minor children.
A trust can hold the money for minor children until they are responsible enough to manage the money themselves. Many clients prefer to give the children access to the monies staggered over a period of time.
Save your grown-up kids from themselves.
If your child will most likely not ever be able to manage the money himself due to a drug or alcohol issue, or because he is just bad with money, the trustee can hold the money in trust for your child’s lifetime and distribute it as needed.
Keep your assets in the family.
If your child is getting married and you do not like her fiancé, you should have a trust. In the event they divorce, you do not want half your assets winding up with your ex-son-in-law.
Avoid probate.
If you put your assets in the trust during your lifetime instead of relying on your will to do that when you die, you can avoid probate. It is not difficult to do – you need to transfer ownership from your regular “Mary Smith” bank account to a “Mary Smith, Trustee of The Mary Smith Trust” account – and an experienced financial advisors or lawyer can assist you with this.
Protect yourself while you are alive.
If you fund the trust during your lifetime and later become incapacitated, the successor trustee will be able to manage the trust assets for your benefit. This is important for people who are single, and for those who do not have children. You want a trust in place that will provide for you in the event you are unable to make decisions for yourself.
