What is a Living Trust?
A living trust is a legal agreement, or trust, made during an individual’s lifetime that entrusts the management of that individual’s assets to a chosen person, for the benefit of the future beneficiary. A living trust is intended to make it simple to transfer the assets of the trust creator or settlor while avoiding the frequently complicated and costly legal procedure of probate. Trust is the legal owner named in living trust agreements, and they are in legal control of the assets and property that flow into the trust.
In various ways, a living trust varies from a will. Living trusts, for example, can avoid probate and keep your estate transactions hidden from curious eyes, but they can’t name guardians for minor children. As a result, wills and living trusts are frequently used in conjunction as part of an estate plan.
How a Living Trust Works
The assets you transfer to your living trust are held in your living trust’s ownership rights or title. Your successor will distribute these assets according to the rules of your living trust after your death.
Because the living trust is revocable, you, as the grantor, retain control over the assets even after you’ve transferred ownership rights or title to the trust.
Because the living trust is revocable, you can deal with the trust’s assets the same way you could before transferring them to the trust. You can, for example:
• Mortgage or refinance assets
• Remove assets from the trust
• Sell or give away any or all assets in the trust
Types of Living Trusts
Irrevocable and revocable living trusts are both available. A living revocable trust allows the trust settlor to name himself or herself as trustee and take control of the trust’s assets. However, because the trust assets remain part of the trust settlor’s estate, the individual may still be liable for estate taxes if the estate is worth more than the estate tax exemption at the time of death. The trust settlor can also update or amend the trust regulations at any moment. This means that the trust settlor can change the beneficiaries or cancel the trust entirely.
The settlor of an irrevocable living trust relinquishes some control rights over the trust. The trustee effectively becomes the legal owner, but the individual’s taxable estate is reduced. The named beneficiaries are set once the trust agreement for an irrevocable living trust is signed, and the settlor has limited power to change it. The settlor has very limited power of change.
Living trust vs. will
A living trust is comparable to a final will and testament in that it is a legal document. You can specify who you wish to inherit your property after you die in both.
The most significant advantages of a living trust over a will are that it avoids the lengthy and costly probate process, protects your heirs’ privacy because probate proceedings are public. In contrast, trust proceedings are typically not, and it can be created with your spouse or partner as a “joint living trust,” allowing you to protect each other as well as your children or other beneficiaries.
You should prepare a will even if you have a living trust. Most of your assets would go through probate if you didn’t put them in a trust before you died. As a result, having a will in place can assist this process. If you die without a will, the courts will distribute your property according to local intestacy laws, which may not be what you want.
How to set up a living trust
When it comes to your living trust, it’s a good idea to consult with an expert estate attorney who only specialize in estate planning which means at that point time give you a current plan that minimize your taxes, and a plan that work in synergistic with the rest of your investments and family goals.
An estate plan is your final and most important financial plan. Basically, you can control and pass on your family values from your grave.
An estate planning attorney can learn about your financial condition and estate planning goals to create a strategy that is unique to you. A living trust necessitates additional documentation and can be more expensive due to attorney fees. However, because a living trust avoids probate, the savings from future probate costs can help offset these legal bills.
Don’t forget to fund your living trust once it’s signed and effective. If your assets are not retitled in the name of the trust, your living trust will be ineffective and your legal fees will be squandered. Often, your estate attorney will be able to advise you on what types of assets to include and how to appropriately title them. Usually, your estate attorney may draft a “pour-over will” to ensure that all of the assets in your estate are transferred to your living trust. This serves as a backup plan in case assets aren’t properly titled.
Who needs a living trust?
However, living trusts can be beneficial in other situations. You may wish to create a living trust if you are older, have a substantial estate, or have ceased buying new property. They can also assist you in ensuring that your loved ones receive their inheritance as soon as possible.
This is a long process, most people don’t understand tax process, and it can be complicated and take a long time. We know how the entire process works, that’s why we use specialists to do things correctly.
If you need help setting up a will or want to know more about a living trust, feel free to contact us.